Have you ever borrowed a payday loan, and do you know how it can affect your credit score?
Here I will cover the things you need to know about payday loans and whether it’s a good option to borrow loans.
In general, payday loans are very short-term loans that help you cover your unplanned expenses.
You can call it personal loans that are easy to get, but the interest rate is too high. Most lenders offer this type of loan for a very short period, i.e., form seven days to one month, while some lenders offer more flexibility.
More importantly, some companies also offer a quick loan with bad credit, but you may have to pay higher interest rates than usual.
Now let us see who can get a payday loan. Are you eligible for this type of loan?
Eligibility for Payday Loans?
If you are 18 years above, then you are eligible but it’s not the only criteria. Your credit score and other financial details are also required for a payday loan.
If you have a low credit score, your chances of getting a payday loan are very less.
There are some finance companies that offer bad credit payday loans which means you can get loans even if you have a low credit score.
However, the interest rate is very high as compared to the normal payday loans.
Next, we will understand how payday loans can affect your credit score.
Effect of Payday Loans on Credit Score
Well, it’s uncertain to say whether or not it will have a bad impact on your credit score.
In the general sense, there is no bad effect on your credit score as long as you pay your loans on time, but to Increase their Business Volume they provide you bad credit if you are not paying your loans on time.
However, some companies may take it negatively while calculating your credit score.
One important thing to note that you don’t have a single credit score. Different companies, credit score agencies, and lenders use a different method to calculate your credit score.
So you can’t be sure about how it will affect your credit score. However, there are certain risks involved in payday loans and that can result in bad credit.
Risk Involved in Payday Loans
Payday loans may get you into a trap of debt and ultimately you may end up with a bad credit score.
As payday loans charge high-interest rates, you may short on funds while paying back the loans.
In case you fail to pay the amount, you have to pay a penalty, plus the interest rates and the principal amount.
So you might end up getting into a debt cycle and have a bad credit score.
Is Payday Loan a Good Idea for Managing Small Expenses?
Well, many people don’t consider the risk of borrowing payday loans.
First of all, ask yourself; are you 100% sure that you can pay back the loan on time?
If yes, then only you apply for it otherwise, never apply for a payday loan.
You should never take it casually because it will build up financial stress in you. On the other hand, you can borrow from other sources or from family and friends.
We have discussed above that a payday loan shouldn’t affect your credit score. But that depends on the companies criteria, a method of credit score calculation.
So it’s not a good idea if you are not good at budgeting and managing your personal finance.
Try to learn how to effectively manage your money so that you can manage your wealth properly.
However, if you have already taken a payday loan and want to pay back on time, plan for it, and make sure that you have the amount on the repayment day.
Once you clear the payday loan, try not to borrow again. Here are some tips that may help you to avoid payday loans the next time.
How to Avoid Payday Loans?
The best way to avoid a payday loan is to stick to a budget and ensure to have a certain amount at the end of the month.
However, life doesn’t work that way and if you need money sometimes, you can choose any of the alternative ways to arrange the money.
- Ask your friends or family
- Cut unnecessary expenses
- Talk to your existing lenders
Now you have understood how a payday loan affects your credit score. Although it shouldn’t affect your credit score, you need to understand that different companies have different terms and conditions.
So it might have a negative impact on your credit score, try to avoid payday loans.
You can borrow money from your family, friends, or another form of credit instead of payday loans. If you have any doubts about credit score or loans, ask them in the comment box, and don’t forget to share your opinion.
Author Bio: –Your Name is a freelance content writer and enthusiastic blogger. She is the co-founder of (smartbusinessdaily.com). She contributes to many authority blogs such as (realwealthbusiness.com).