How Payday Loans Affect Your Credit Score

Getting a payday cash advance is usually a last minute solution for most people's financial woes. You may be in a situation where you have bills that have to be paid and rent that is due, but you are not going to be paid until a week or two later. In these cases getting a payday loan could be a good way to bridge that gap and obtain cash immediately. However, it is important to remember that you must only get a payday loan if you are certain that you will be able to pay it back on time. Not paying back a payday loan can have disastrous implications for your credit score.

Fast payday loans are so sought after because they get you cash in your bank account within 24 hours. All you have to do is fill out an application for the same day cash loans and you can have the cash in your account the next morning. A few basic personal details are required and a direct deposit statement from your employer is also necessary. This shows the payday lender you have a steady stream of income and will be able to pay back the loan. Same day loans can range from £75 to £1000, depending on how much you qualify for and how much money you need.

Payday loans come in a rigid structure, in terms of their payback schedule. The loan must be repaid in a time frame of one to three weeks, dependent on when you are next paid by your employer. And the money that must be paid back is usually slightly higher than the amount of the loan, reflecting a high interest rate that compensates for the risk the payday lenders are taking. It is important to remember that payday loans are high risk because the people asking for them are in a poor financial situation, otherwise they would not need the loan in the first place.

If you do not pay back one of the fast payday loans you get, your credit score is severely hurt. Typically the payday lender will give you a few chances to pay the loan back. They will simply increase the interest rate and give you a week or two extra to pay them back. However, if you are unable to do so then they will have no choice but to report you to a collections agency. Once you are reported to a collections agency you can automatically assume your credit has been adversely effected. This will appear on your credit report as a loan you defaulted on, which can bring your score down by a lot. Once your score goes down it can be a huge challenge to bring it back up.

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