subject: Payday Loans May Limit Your Future Financing [print this page] If you take a payday loan, you may be risking your financial future even if you pay back the loan on time. GE Money has confirmed that it will no longer be offering mortgages to borrowers who may have taken short-term high interest loans more than twice in the past year.
Experian has also started specifically listing payday loans separately. This is further evidence that payday borrowing can have an effect on a person's ability to qualify for other financial products. Previously, the credit bureau only provided a generalized history of a person's borrowing.
These recent developments mean consumers have to be more cautious about the financial products they choose. Financial experts agree that GE's decision to exclude recent payday loan borrowers from mortgages is an indication that consumers need to look for other safer and cheaper options beyond payday loans.
While there is no denying that consumers may need money quickly for emergencies, payday loans can lead to further future lockouts from accessing credit from major lenders. Some financial experts advise borrowers to take out and pay credit cards and long terms loans if they want to improve their credit.
Should You Pay Back Payday Loans in Installments?
Most payday lenders require borrowers to pay back payday loans in one installment. Borrowers usually have up to 30 days to pay back their loans. Some lenders can accept two to three installments if borrowers are unable to pay back at one go. This convenience however comes with additional costs.
Financial advisers caution borrowers against opting to pay payday loans in installments. Consumers need to know the financial repercussions of splitting their payday loan payments. During payday, consumers may find themselves in tight financial situations where they realize they have less income the for the coming month. Studies have shown that more than half of payday loan borrowers borrow more than 10 payday loans every year. Borrowers who fail to pay back the installments as agreed risk having negative credit. Payday lenders usually report defaults to the credit bureaus who then adjust the credit score accordingly.
Financial experts advise payday loan borrowers to plan their next month's budget and cut off unnecessary expenses to avoid having to apply for subsequent payday loans. Borrowers who feel they will not be able to raise the required money on time should contact their payday lenders and request an extension of a day or two. The extensions should be limited to as few days as possible to keep the costs of the loan down.
Financial advisers agree that guarantor loans are a more responsible form of borrowing because of the social aspect. The guarantor, who is typically a family member validates the borrower can pay back the loan. Moreover, borrowers are spared from the astronomical interest rates that payday loans come with.
However, the major question remains about the financial sources that borrowers can rely on when they need small amounts of money fast. With many lenders offering medium term loans from $5,000, borrowers who need less than $1,000 may still have to rely on payday lenders.
