Are Payday Loans Good For Credit Rating
Most of you may already know that a payday loan is a short term high interest loan, designed to help you to stay afloat between two paydays. Generally, a very small amount of money can be borrowed upon approval against these loans. This makes these loans a great solution for small emergencies only. Undoubtedly, payday loans are today one of the fastest growing type of lending option available in the loan market. There are many people who are using these loans more than just for borrowing. Many see these loans as a way to boost their credit rating. But is this loan really good for your credit rating? Let’s find out!
Other terms for payday loans are cash advance loans, post-dated check loans, check advance loans or cash loans. Whether you are applying for this loan online or walking into a lender’s store, the process is basically very similar. You provide your financial and personal information, submit your request for a loan, pay a fee and receive the cash you are in need of deposited directly into your checking account. If you do not have any other financial options available, payday loans can be a good tool for quick and easy borrowing during any short term emergency. These loans can be used for any immediate and temporary financial need. They are ideal for those who do not have a credit card or savings in hand.
There are several factors that help the lender to determine how much they should lend you. There are many lenders who may also forgo your current credit status. Payday loans can be costly. Lender may charge high interest rates and fee. Since the loan are offered for short term, the cost of borrowing is high and also has an annual percentage rate (APR) of nearly 400%.
When you apply for a payday loan, it usually goes on your credit file. So, whether you repay it on time or fail to pay back, it shows up. When you fail to repay you will have to face the consequences. But repaying on time will have positive effect on your credit rating. When it comes to credit scores, different lender will score you differently. Credit score is generally based on the way you have acted with your money in the past. Overall, if you are paying off your loan on time you will be considered as a reliable borrower. Thus, getting a payday loan may help your credit score and make it easier and cheaper to get other loan products such as mortgages.
However, payday loans can still be a risky solution. They are expensive, thus the interest rates are horrendous. This can make repaying back the loan a much difficult procedure. The longer you take to repay, the costlier the loan will get. Compared to payday loans, there are several other better and free ways that will boost your credit rating. Check for other credit products that are less costly than payday loans. Getting a credit card is by far the best way. Just make sure you are repaying it back in full each month so there is no interest and no extra charges.
Ahead of applying for a payday loan, take your time and consider your options. Find out if it is really an emergency. Payday loans can be a very helpful solution for one-time unplanned expenses, but they are not ideal for funding unnecessary expenses. Wait until you receive your next pay check if possible. Paying a late fee on your bills can be much cheaper compared to the financial charges of a payday loan. You can also consider other means to borrow.