As a potential borrower of payday loan you should have an idea that your credit history can be influenced by short term financing in a major way. They are primarily availed when the borrower is in a cash strapped situation and need fast money to resolve financial urgencies like paying off medical bills or a college fee or else for bearing expenses for a car repair. They are primarily suitable for borrowers with less than decent credit as it becomes difficult for them to avail traditional loans with poor credit history.
Short Term Financing And Its Impact On Your Credit
Poor credit ratings are triggered by the borrowers’ irregular repayment tendencies. In case of unsecured loans, none of the borrowers’ property would be seized by the bank in case of a default but his creditor would mark him negatively. As a result, he is most likely to be turned down for loans if he applies for them the next time.
Now, borrowers can be tempted to opt for short term loans in these cases. But the mention of payday loans in your credit file can make your lender mark you a bit negatively because it invariably implies that you have been saddled with poor credit ratings at some point or the other. Repeated loan rejection, in all likelihood, might also result in plummeting credit scores. However, in this regard it might be mentioned that it is easy to qualify for short term financing. Provided you fulfill some simple requirements you might as well stand qualified. Here is a brief glimpse of the criteria:
- You need to be at least 18 years of age to qualify
- You should have a saving or checking account
- You should be able to furnish proof of a regular source of income so that the lender can estimate the chances of repayment. Generally they want you to be employed with your current employer for a considerable period of time (Now, the length of the period might vary with different lenders, for instance while some of them require you to be employed with your present employer with at least 3 months, while it’ll be 6 months for others and so on.)
At present lenders might not be that strict with the impact of borrowing payday loans on your credit scores. Your credit file might not even mention short term financing that can possibly harm your prospects as a borrower. But it is being mulled that in future it will be mentioned in your credit report and that might induce lenders to mark you negatively.
Moreover, there is every chance of you defaulting on payday loans as they carry very high rate of interest. The APR might even touch 400 percent. You will be given an option of a rollover in case you can’t repay for the first time, but please remember that every default will result in plummeting scores. However, timely repayments of such high risk loans might help you improvise on your bad credit history as well. However, it would be better if you consult an expert in this case.
Author Bio: Sam Payn is an experienced web content writer and editor, who at present, is writing for well-established finance portals.