Will a Payday Loan Affect Your Credit Rating?Oct 08, 2020
When it comes to covering rent and skyrocketing bills, a payday often can’t come soon enough. If you’re hunting for financing that can ride your expenses over until the following cycle, a payday loan might be ideal for your circumstances. Approval is instant and gives you the freedom to spend on whatever you need to until your check comes in. However, a payday loan doesn’t come without its risks.
What is a Payday Loan?
Payday loans are typical among individuals seeking financial assistance amid a short-term emergency or to meet unexpected costs. Usually, they can provide relief for a period of between one to six months. Depending on your credit history, you can receive assistance from R100 to R8,000.
Most will take out a payday loan to cover a fine, fund a spontaneous holiday, or shoulder higher-than-usual bills. As a get-out-of-debt-free card, a payday loan might sound too good to be true. In some cases, it is.
Is a Payday Loan Bad for Your Credit?
Before you worry about your credit score, know that payday loans are costly. They come attached to high-interest rates and can end up costing you more if you borrow a large amount. Even if fees aren’t an issue, your credit record might be.
If you pay off a payday loan promptly and without problems, it can do wonders for your credit score. Get it wrong, however, and you could be facing some devastating consequences. If you miss a handful of repayments or end up defaulting on your loan, your credit score can plummet. Not to mention, the results will affect your ability to take out loans in the future.
Like any form of financing, a payday loan can work to your credit rating’s favor or disadvantage, depending on how you handle it.
Should You Turn to a Payday Loan?
As with any type of bank or private provider product, you’ll want to consider your current financial health before taking out a payday loan. Ask yourself the following questions:
- Can you afford the additional fees, if any?
- Can you confidently meet each repayment date?
- Are high-interest rates a problem?
- Can your credit score afford to take a dip, or are you unwilling to take the risk?
- Do you have other available methods of financing?
In extreme cases, you can choose to settle your payday loan with another loan. Though debt consolidation loans will enforce stricter approval requirements, they offer lower interest rates and extended terms. However, note that taking out debt consolidation to eliminate your payday loan can negatively impact your credit score.
Despite their exorbitant fees, a payday loan can prove extremely financially beneficial to individuals that desperately need it. Deciding whether or not they’re worth the risk on your credit score relies on your unique circumstances and your capability to navigate emergencies.
If you’re after a payday loan that is secure, reliable, and flexible, collaborate with us at Hoopla Loans. If you’re of legal age and earn at least R5,000 a month, you won’t have to worry about covering unexpected bills on your own—we’re here for you!