Do Online Payday Loans Show Up On Your Credit Report?
Do Online Payday Loans Show Up On Your Credit Report
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You might be surprised to learn that payday loans can impact your credit rating, even if the provider doesn't require a credit check. Like any credit provider, payday loan companies must report who receives finance and therefore this can have a knock-on effect on your rating.
But is this necessarily a bad thing?
Well, if you pay the loan back on the agreed date, it certainly won't have a negative impact. In fact, by taking out a payday loan, you might find that your credit rating improves slightly.
A credit rating is basically a score given to each consumer. It is often used by finance companies to determine who they should lend to and who has a history of bad credit. If you default on payments, have credit cards that are constantly at their limit or haven't sought credit in the past, your score may suffer.
However, every time that you successfully pay a direct debit or complete a loan it should improve. This might only be a very small gain, but if you're looking to secure a payday loan anyway, it's certainly a positive bi-product of short-term finance.
Of course if you did default your payment then you will not only be subject to a charge from the lender, but your credit rating will suffer as a consequence. Therefore there is added impetus to only borrow what you can afford and avoid getting yourself deeper into trouble by continuously seeking extra credit without the finance to cover it.
Payday loans attract a lot of headlines for their comparatively high rates of interest (APR). Whilst a standard loan might have a rate of around 8.9%, a typical payday loan can be in excess of 2,000%. This doesn't mean that the amount that you pay back would be 225 times the amount of a conventional loan. It is simply that the way interest is calculated doesn't necessarily translate over to a short-term lending option.
For instance most companies will charge a base rate of around 25 pounds per 100 borrowed. In real terms this is a 25% rate of interest. Whilst this is still significantly more than a bank loan, it is nowhere near as imposing as the headline APR that most advertise.
As long as you are in control of your finances and are able to afford the cost of repayment, it is a great short-term solution. However, this doesn't mean that payday loans should be used as a method of artificially improving your credit score.
Credit score figures tend to change by tiny margins, not huge swathes. This is certainly no different when it comes to paying off a payday loan. But the important thing to remember is that you won't see an adverse impact on your credit score and, as a consequence, your future borrowing opportunities as a result of taking out a payday loan.
The loss of credit score is limited simply to those who fail to repay - just as with all other cases of missed payments. Whilst payday loans are typically made available to those who can't access long-term lending solutions, they aren't viewed by credit agencies as being inherently negative. Therefore by applying and receiving one the only impact that it should have is a positive one.
So if you're concerned about the potential long-term implications of a payday loan, there's no need - certainly where your credit rating is concerned. Whilst it will be reported that you have taken out finance, this won't result in a lowering of your score unless you default. So don't let this hold you back from getting the short-term help that you need.
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