Do you need some extra cash for an emergency? Or maybe you need some money to make ends meet this month. No matter the reason, a payday loan is a great way to access cash quickly until you get your paycheck. One concern is whether it will affect your credit score or not. Read more to learn about payday loans and your credit score.
What is a payday loan?
A payday loan is an unsecured loan that typically has to be paid back by a specific date. Most are auto-deducted from your checking or savings account on the day you get paid. During the application process, the payday lender will ask you a series of questions, including:
- What is your weekly or monthly salary or income?
- Do you have an active checking account?
- Have you ever had a payday loan before?
They may also request your most recent pay stubs and W-2 from last year. Generally, they do not ask you for your social security number to run your credit report for approval. However, they may use your social security number and driver’s license to confirm your identity. Even if you have previously applied for bad credit loans and been turned down, you can still get approved for a new payday loan.
How does it affect your credit score?
Credit scores range from 300 to 850 and sometimes higher, depending on the company issuing the score. Anything over 600 is considered fair and only increases as it goes up. Payday loan companies that give out loans for bad credit do not incorporate credit scores into the loan application process. They also do not affect your overall credit score.
Credit card companies and banks often pull a soft inquiry when you apply for a loan. This can cause your credit or FICO score to plummet by a few points. The good news with a payday loan application is that it does not appear on your credit report as an inquiry.
Pros and cons of a payday loan
The main advantages of a payday loan are:
- Fast access to cash, typically the same day or within 24 hours.
- No hassle of credit checks or inquiries will affect your FICO score.
- Convenient short-term loan options with easy payment plans.
- No collateral or deposit is required.
While personal loans for bad credit have a lot of pros, there are a few cons or disadvantages as well. These include:
- Interest rates are slightly higher than traditional loans from a bank.
- These loans are short-term and have to be paid back typically within 30 days or less.
- Payday loans can affect your credit score if the account goes to collection.
Payday loans are a good option for anyone, regardless of their credit status. Even with bad or blemished credit, you can easily get approved for a convenient cash loan.
Payday loan alternatives
There are alternatives if you don’t have a steady income or don’t qualify for a payday loan. One popular option is a personal loan. It may require a high credit score to gain approval or some form of collateral to secure the loan. However, do some research beforehand, use a personal loan calculator to get a clearer picture, explore more affordable borrowing options, and understand the potential costs involved.
A title loan is another alternative for loans with bad credit. It requires that the lender hold a title to your car, boat, RV, or home to secure the loan. Once you make all the payments and pay off the loan, your title will be returned to you.
If you’re looking for a loan that won’t affect your credit score short term, a payday loan is the best choice.
A payday loan is a great way to get the funds you need to move on with your life. It’s easy to get approved and, best of all, keep your credit score intact!
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