Can Payday Loans Cause a Bad Credit Rating?
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What Is A Payday Loan?
Payday loans are small loans that are intended to be short-term,often for people with a bad credit score. Traditionally, payday loans were designed to be repaid on or before the borrower’s next payday. However, with the evolution of payday loans, repayment terms now vary and are not always directly related to the borrower’s actual payday. Payday loans for bad credit can be beneficial to anyone who is in the middle of a financial crisis and is in need of emergency funds for an unexpected expense before their next pay day. Unexpected expenses can range from automobile repairs, sickness, new medications, unexpected bills, and/or avoidance of late fees. Bad credit payday loans were never intended to be used as a resolution for long term financial difficulties so their workings are somewhat different than traditional loans or other forms of credit.
How Payday Loans Can Affect Your Credit Score?
Payday loans don’t affect a borrower’s credit score unless the borrower’s postdated check doesn’t clear the bank and the borrower defaults on the loan without making provisions to cover the overdraft account. Although unlikely, defaulting on the loan can result in the debt being sold to a collection agency, reported to one of the three major credit bureaus, and/or lead to the bad credit loan direct lender filing a lawsuit.
Installment Loans for Bad Credit
Installment loans are typically for larger amounts than payday loans with longer maturity and usually, borrowers have limited options. These kinds of loans are typically taken out by borrowers with poor credit scores (Bad credit installment loans). As with payday loans, there should be no effect on credit rating unless you get into trouble with repayments in which case this can affect your credit score.
What if a borrower is unable to repay a payday loan?
Generally, if a borrower is unable to repay a payday loan in a timely manner one of two things can happen:
1.) The lender will attempt to withdraw the pre-authorized amount from the borrower’s account.
2.) If the funds are unavailable the bank and the lender are likely to charge the borrower a fee.
The best course of action for a borrower that is in danger of defaulting on a loan is to talk to the lender. Although most lenders may charge a small fee to extend the terms of a loan it is a much better alternative to accruing late and/or insufficient fund fees. Borrowers should make it a priority to pay back any money borrowed. However, in most states, payday lenders are unable to use measures such as lawsuits, wage garnishments, or imprisonment in cases of non-payment as a means to recuperate lost resources. Prior to applying for any type of loan borrowers should make themselves familiar with the terms and agreements of the lender so they are completely oriented to the repayment and other terms they are agreeing too.
Payday loans generally have the same risks as traditional loans and are a good way to finance emergency needs so they shouldn’t be overlooked. The funds from a payday loan are typically directly deposited into a borrower’s accounts within 24 hours of the lender receiving the signed loan contract. In most cases payday lenders expect loans to be repaid on or before the borrower’s next payday but repayment schedules may vary depending on the needs of the borrower’s and/or the lender’s policies. However, the most common repayment method for most lenders, giving payday loans with bad credit is to directly debit the borrower’s checking accounts via ACH on the agreed repayment date.
Any borrower considering a payday loan who is unsure or uneasy about the repayment terms of a payday loan might want to consider other alternatives prior to making a definite decision. The availability of payday loans for people with bad credit can be accompanied by excessive finance charges and fees and use them regularly to supplement an income rather than strictly for financial emergencies can be financially draining.
Lack Of Other Alternatives
Many payday loan borrowers have exhausted all other alternatives to payday loans prior to considering them:
- Made cuts to the variable expenses in their budget to free up funds;
- Borrowed money from friends and/or family;
- Maxed out credit cards;
- Negotiated due dates for other debt obligations with other lenders;
- Took cash advances from credit cards;
- Utilized bank overdraft protection;
- Obtained small loans from traditional lending institutions.
Be Credit Conscious and Aware
Although it may be difficult to stay on top of a credit score during times of financial crisis it is more important than any other time to make sure that the report is free of errors, collection accounts, and fraud. Free credit reports, scores, and/or maintenance services and tools can be obtained through www.annualcreditreport.com and www.credit.com.
Green Touch offers payday loans up to $1500 dollars to borrowers who are at least 18 years old or older, US Citizens, have proof of employment, and have bank accounts capable of receiving direct deposits. The application process is simple and only requires a small amount of personal information, a small amount of information on the desired amount of money to be borrowed, general information regarding any other outstanding payday loans, and employment information. Once the application has been approved and received by the lender the borrower will receive a direct deposit to his account in as little as a single business day. Potential borrowers can call our toll free number to speak with a representative or jumpstart the process by filling out the online application.
Although payday loans have been given a bad reputation due to their high-interest rates and penalties they are helpful in times of financial crisis when all other alternatives have been exhausted, and let’s not forget you can even get a payday loan with bad credit. The truth is that borrowers are not penalized when they pay back their loans responsibly on time and as agreed. Green Touch encourages borrowers to review all of their loan documents prior to agreeing to or signing them because they want their customers to make an informed decision prior to agreeing to anything.