Every so often, you might fall on hard times, and you look for ways to help you get out of a tight financial situation. During these difficult times, you may need extra cash before your next paycheck. If you don't have an emergency fund or a credit, a payday loan or cash advance loan may be your only option.
So How Do They Work?
To put it simply payday loans are short terms solutions to an urgent financial struggle. They are traditionally issued as a personal check in the name of the borrower over to the lender. The borrower can also allow electronic access to the payday loan company so they can access their bank account.
The payday loan company holds the personal check until the borrower's next paycheck, at this point, the loan and any outstanding charges are to be paid back in one lump sum.
Regarding electronic access, the lender has access to the bank account of the borrower and the money is both received and paid back online. Just like with the personal check, the lender will automatically debit the borrower's bank account on their next payroll date.
How Payday Loans Affect Your Credit Rating
According to the Consumer Financial Protection Bureau (CFPB), the companies that provide payday loans do not report the loans to any credit bureaus. Which means the simple answer to the question is no, having said that other things may be affected by a payday loan.
For example, once the loan goes into default and a collections company is required to step in, this will go on your credit report, and could most definitely damage your credit score. The negative feedback to the credit report agency will stay on your report and continue to affect your score, even after the lending company has received payment of the full amount of the loan.
Don't Be Delinquent on Your Payday Loan Payments
The reason payday loans are desirable temporary solutions to those in financial need is that they are easy to obtain. Anyone can apply for a payday loan without having to go through a traditional credit check
If you opted for the option that required you to send out a post-dated personal check and you do not have enough money in your account by the time the check is to be cleared by the lender, then this is also classed as a breach of contract and the loan can be sent to collections. Then what some people end up doing is getting another payday loan to repay the old payday loan and do on, becoming a vicious cycle that is hard to get out from underneath.
Once the debt is turned over to the collections company, the collections company then sends that delinquent account information to the three credit bureaus. The company you have borrowed the money from has every right to take matters further and file a lawsuit against you - this will show up on your credit report under the public records section. When they file a lawsuit, they will typically get a judgment to garnish your wages, which they can garnish up to 25% of your check for six months at a time.
Affecting Your Future
The negative marks on your credit score can stay there for seven years, so when you go to purchase a home or a car or anything else that requires credit, in the eyes of the lender, having these negative comments on your report are a bad sign and show a lack of responsibility.
Considering all the pros and cons of payday loans is essential before you take out a payday loan. Those who take this extra step will be better prepared to work beyond their next payday without taking a second cash advance. This eliminates unnecessary debt and raises your credit score. Consumers who rollover their payday loans because they need money faster than they can earn it could potentially damage their credit ratings if they default on the loan.
To avoid harming their credit ratings, applicants should consider all the charges from the lender. These institutions provide necessary financial assistance, but it's up to consumers to budget responsibly.
CASH 1 offers Installment Loans in Las Vegas and Reno, NV. You don't have to pay the balance of your loan on your next payday. You can make payments on the balance of your loan for up to 90 days. You could also use your car title for a title loan in Arizona or Nevada and receive up to $50,000.