Do Payday Loans Go On Your Credit Report?

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There are many things that are not known about payday loans but one of the most common questions asked by people is: “do payday loans go on your credit report?” In order to answer this question we should highlight what payday loans are first and then understand the influence on your credit report.

What Is A Payday Loan?

The payday loan is a short-term, unsecured, small cash loan. You normally borrow against a paystub or a personal check. Borrowers quickly receive easy and fast access to an amount of money that is paid back on the following payday, plus interest, of course. Lenders offer cash and borrowers use that amount however they see fit.

Because of the nature of the loan, a payday loan normally has a high-interest rate. Remember that with loans, when they are really easy to get, interest rates are higher. You can get a payday loan with just an ID card and paystub records.

It should be known that payday lenders normally have a bad reputation and are seen as being predatory. This happens because of the simple reason that cash is offered to those that were turned away by the banks and even by credit unions. The operation is thus expensive since there is always the possibility that the borrower will not pay.

Further Reading: Payday Loans Explained

The Process

If you need or want to take out a payday loan, you have to go to a lending store or visit an online website for payday lenders. The lender needs to be shown bank statements and pay stubs for verification. Lenders then simply offer the necessary cash. In return, the money needs to be given back at a specific time.

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Online payday loans are nowadays more popular than the regular brick and mortar stores. An online loan application is submitted and money is then transferred to a bank account. Finance charges and loan amounts are credited to the bank account of the lender on the following payday. However, the advent of the internet made it easy for the scammers to start online operations.

Many online lenders are not actually regulated so you have to be really careful. These are the lenders that can really hurt your credit score. Be sure the lender has a good reputation before you agree to a deal.

How Do Payday Loans Affect Your Credit Score?

Payday loans are normally not listed on the records of credit reporting agencies like Equifax, Experian or Trans Union. Even so, the payday loan history can be collected by other credit reporting agencies that are used by lenders in order to check your eligibility as you apply for some loans in the future.

The big problem appears if a payday loan is not repaid. If this happens, a debt collector may come into play. He will report your debt to major credit bureaus and your credit score will be impacted. Whenever a payday loan is repaid on time there is no problem.

Extra Tip: You can report that you took out a payday loan if all went well so you can improve your credit score. This is particularly useful in the event your score is low and you work hard to improve it.

What To Do When Payday Loans Cannot Be Repaid

The first thing to do is to contact your lender as soon as you realize you will have problems repaying the loan. Talk about partial payments or see if new temporary payment plans can be arranged. When more time exists, arrangements can be in place. When you do not alert lenders, interests increase and it will be even harder to repay the debt. The lender can sue you in a civil court case if you do not make the repayments on time.

Further Reading:  How to Lower the Interest Rate on a Personal Loan

Payday Loan Alternatives To Consider

Before you jump into the payday loan option, it is worth considering other options that may be available for you right now. Those you want to consider are:

  • Personal installment loans – Get in touch with a credit union or a bank to see if they offer unsecured personal installment loans. When bank approval is not possible, there are lenders that offer flexible loans.
  • Pay advance – See if your employer has a paycheck advance opportunity available. The big benefit here is that you receive a payment advance instead of a loan. You do not have to deal with interest rates. The problem is that you can end up asking for the advances too often when you do not budget properly.
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