Payday loans don't show up on credit reports when they are in good standing. But if you can't pay back your payday loan and the debt goes into collections, it can have a negative impact on your credit score. So, is it bad to get a quick payday loan? The answer is yes. That's because they come with huge fees and high interest rates.
Fast payday loans are incredibly expensive and can quickly lead to a cycle of debt. Applying for a personal loan may mean taking on more debt, but it will cost much less than a payday loan. The problem with payday loans is that they target people who have difficulty repaying even relatively small loans. People often take out these loans out of desperation, even though they know they can't pay them back.
The great thing about payday loans is that you don't have to give the lender any collateral or borrow an item of value like you do in a pawn shop. The ease of borrowing and access to cash make payday loans attractive to many consumers, especially those who have limited or no access to conventional credit. Although the federal Truth in Loans Act requires payday lenders to disclose their financial charges, many people overlook the costs. These rules would provide an avenue for banks and credit unions to offer customers lower-cost installment loans. Payday lenders advertise on TV, radio, online and by mail, targeting workers who are living paycheck to paycheck.
Most payday lenders don't report payments on time to credit bureaus, so the loan won't help your credit score. If you don't repay a loan and it goes into collections, then a debt collector is more likely to report it to major national credit bureaus such as Experian and Equifax. Safer loans follow national credit union guidelines or limit payments to 5% of income and limit loan duration to six months. The high interest rates associated with payday loans make them incredibly expensive and can quickly lead to a cycle of debt. Due to high interest rates and hidden fees, payday loans have the potential to derail your financial health and credit score.
If your car breaks down or you get sick, having a few months of living expenses saved can help you avoid the need to apply for a loan in the first place. With a payday loan, if your check bounces or you can't pay the full balance on the required payday, you may have to rollover the loan into the next payday, accruing more fees in the process. The providers of these quick payday loans (usurers) usually target people who don't have good credit or decent savings. But be careful, just because a payday lender doesn't seem to care about your creditworthiness doesn't mean borrowing money isn't dangerous. Payday loan providers are usually small credit merchants with physical stores that allow approval and application for credit on site.
Because payday lenders often target those with lower incomes, many laws are designed to protect certain groups from abusive tactics.