Is a Credit Check Required For All Payday Loans?

Is a Credit Check Required For All Payday Loans

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When you're applying for a payday loan the lender will often require a few personal details to verify that you are able to cover repayments. This will usually include your salary, employment information, bank account and residence. Whilst this will often provide them with a decent overview, they may also require a credit check before making a final decision.

This isn't mandatory, in fact many payday loan providers still choose not to employ a credit check, but they are increasingly popular. With an added emphasis now on responsible lending following the recent banking collapse, lenders want to ensure that people are in a financially stable position before giving them credit. Therefore checks are carried out in order to filter out any that are entirely unsuitable.

The credit checks employed by payday loans companies are usually far less stringent than those for a mortgage or a bank loan. They aren't designed to exclude anyone with a less than perfect history, just those who clearly have a history of failing to repay debts.

Of course this is to cover their own investment, but it is also for the benefit of borrowers too. If you can't afford to repay the payday loan in full, then it would be hugely irresponsible for the lender to give you the funds in the first instance. By defaulting a repayment or getting involved in a cycle of continuously relying on payday loans to get through a month, you will rack up more debt and plunge yourself into a deeper financial hole.

Payday loans are a slightly different animal though. These are short-term cash advances, usually below 1,000 pounds in value. Therefore there's less risk involved in lending to someone with a mediocre credit history, but a decent salary for instance. A mortgage company might lend hundreds of thousands of pounds; therefore it's only right that they should have a more stringent policy than those who offer the chance to get a few hundred pounds.

For many, the payday loan is something of a last resort. When all other avenues fail, it can provide you with the cash you need almost instantly. But that comes at a cost.

One of the reasons payday loan providers can allow people with a chequered credit history to lend is because they have a significantly inflated rate of interest attached to their finance. Most would probably balk at the 2000%+ that the sites advertise, but in real terms this is usually around 25 pounds for every 100 that you borrow.

By adding a quarter on top of the loan amount the payday loan companies are able to operate safely, knowing that a few missed payments won't be too critical. That doesn't mean that they won't chase up missed payments of course. During the application the borrower must include a date when the monies can be collected and the bank details to use. Unless you have already agreed to change this, the lender will still look to take the full amount on the day in question.

Failure to have the required funds available will result in a charge being applied to your loan and another month's interest included for good measure. This will often mean that you end up paying well over half of the original amount borrowed purely in fines and interest. Of course, this will mean that your finances will be stretched even further - maybe to breaking point - which is why you need to be careful before committing to a loan.

So whilst the payday loan providers won't necessarily use a credit check, or have a strict policy in this regard, that doesn't mean that it is necessarily the best choice for you. Do your sums first. Make sure that you are borrowing the cash for the right reasons and have the means with which to pay it back. Whilst the payday loan company should eliminate most of those who can't afford it, some will still inevitably get through the credit checks and other processes.

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