Payday Loans
How payday loans ACTUALLY affect your credit score and capacity to borrow funds. Ok so let me get this straight…. I get SO MANY of my clients who have been affected more with a payday loan than what its worth.
And I get it - Payday loans can be helpful for those who are struggling in the short term or need some quick cash to repair your vehicle, have some extra spending money for that holiday to Bali - However, it's important to understand how a short term loan can affect your credit score and ability to borrow funds for a Car, a camper trailer or your dream wedding!
A payday loan would, for example, be given a different weighting than a bank mortgage and may contribute to a lower score on your credit file. The lenders on our panel also deem a category of financial hardship given you haven’t been able to manage your own weekly pay you are needing assistance of a “payday loan”
Most of our lenders prefer NO payday loans that are existing / current and prefer 6 months from current date of enquiry. Meaning no payday loan enquiries within the last months at the time of your application for finance.
However we do have Tier 3 lenders who will accept current payday loans but the risk rating is much higher to our mainstream Tier 1 lenders.
Taking out a payday loan could be a quick decision you make to cover some emergency expenses, but don’t let the ease of the application process lead you to commit any of these common mistakes:
Taking out too many loans. Once you have repaid a payday loan, you may be tempted to take out another one. But taking out several payday loans may be a sign to prospective lenders that you are not in a stable financial position. It doesn't matter if you are repaying the loans on time; the fact that you needed to take out so many loans to begin with may not be a good sign to lenders.
Not making your repayments on time. Repayment history is now listed on your credit file. This makes it more important than ever to make your repayments on time. Any missed or late repayments will be listed on your file and will be able to be seen by any lenders that look at your file for two years.
Making several applications in a short space of time. As well as taking out too many loans, you should avoid making too many applications within a short time period if you aren’t approved for a payday loan. All applications show up on your credit file, and now account opening dates are visible, lenders will be able to determine whether you were approved based on your applications and how many accounts were opened. Making several applications can indicate that your finances aren’t in good standing. If you were rejected it can give another lender a reason not to approve you also.
Short term loans are one of the few financing solutions that can help those with bad credit, with some payday lenders not performing a credit check at all. In turn, failure to make repayments on a payday loan, or taking out too many, can have a negative effect on your credit rating, and can actually see more negative marks appear on your file.
So while having bad credit can put you in a position where you have few other alternatives but to opt for a payday loan when in need of credit, it can also see you placed in a bigger financial predicament and see your credit position turn sour if you fail to repay the bad credit loan. Although, as outlined earlier, it can also help your credit score if you make your repayments on time and don’t take out too many consecutive payday loans.