Payday loans. Guaranteed approval. An answer in less than 10 minutes. Quick cash. No hidden fees. No paperwork. Also, the second worst thing you can do to your credit report.

Let’s get something straight. Payday loans are not good. Sure, they’re a solution to a problem, but so is selling a kidney.

Selling a kidney wouldn’t have such significant implications on your credit report. Nor would it burn a hole in your bank account with hefty fees and interest rates. It would burn a hole in you though, so I don’t suggest you use that as a means to get quick cash.

The choice is yours, but if you want to consider the prospect of a payday loan, at least know what it is you’re facing.

Firstly, be realistic.

Don’t take a payday loan if you have even an inkling that you won’t realistically be able to pay it back when it’s due. Payday loans have absurdly high APRs since they are designed to be paid back short-term. If you need to extend it, you’re talking about a lot of money in interest alone. Can you afford that?

Payday loans are short-term, but it is for this reason that they can severely impact you in the long term. Jot down your income and expenses, ensuring that you will 100% be able to pay it back on time. If you can’t, don’t take it.

How much are you spending on the loan? In some cases, you can be paying back twice as much as you borrowed. Work this out before you apply. They usually put this in the small print, so just make sure you read it. Let’s say you’re taking a payday loan for a new iPad. If, over 12 months, the cost of the loan for your iPad doubles, consider that in that year, you could have two iPads. Or, you could have your iPad in 6 months and start saving for your next big purchase.

Things to consider

Are you making any major purchases in the next year? If you’re planning to apply for a mortgage, a payday loan on your credit report could potentially derail your plans. When looking at your credit file, lenders take into account the most impactful type of credit you have, and whether this has a positive or a negative impact. Payday loans are, by far, the most impactful credit you can have, so you will need to wait at least three months before making any applications. The reason for this is simple; If you need a payday loan, then you’re likely to have poor affordability.

And, since we dropped that bombshell on the first line: The worst thing you can do to your credit report? Go Bankrupt.

Credibble offers two fabulous solutions

If you’re preparing to take a mortgage, never apply until you’ve tried our unique and FREE Credibble Home app. Our smart technology will tell you what you need to fix so you avoid rejection. The app predicts when you will be able to buy, for how much and tracks your month-by-month progress to mortgage success. We’ve even added your own mortgage broker, so you get the best deals available.

More focused on your credit rating? Well, get started for free with Credibble’s 24- Factor Credit Check to truly help you improve your creditworthiness and how lenders view you. (Remember: lenders don’t use your credit score! We’ll show you what lenders look for and how to get your credit report in the best shape possible).

Last updated by Robert Edwards, May 2022

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