Are Payday Loans A Good Way To Build Credit?


If the reason for going to the bank is not raising the salary, then it is a real hassle for all of us to go there. However, today we see banks as a great life partner that can help us a lot, but which also requires the fulfillment of certain obligations. Our bank account, in addition to being a means of payment, can also help us obtain short-term or long-term loans. At some point, all of us will need an amount that exceeds our monthly income, whether for buying a house, a car, traveling or something completely different. The ultimate goal is the same for everyone – to get a loan from a bank.

To get a loan from a bank or other financial institution, of course we must try to obtain all the necessary conditions. We know that some of the conditions are the amount of net monthly salary, liquidity, payment of due obligations on time, etc. However can other things like payday loans affect our credit in the future? We don’t all have a degree in economics to know the answer to this question, so we have tried to find and bring you closer to the answer.

What are payday loans?


Payday loans can be defined as short-term loans from a bank or some other financial institution. You don’t have to do a credit check for them, which means getting this kind of loan is quite easy. These loans mostly range in the amount of $ 300- $ 500. If you need cash larger than your regular income, or you have unplanned obligations, this type of loan is at your disposal. However, it can be a double-edged sword. At first it seems like a very easy way to get extra money, but it can also very easily drag you into even bigger debt. The interest rate on payday loans is much higher than the average interest rate. Their payment happens automatically after the first payment of money in your account. However, can opening this type of loan in a bank have negative consequences for future loans? It remains for us to find out.

Do payday loans affect your credit score?


The answer depends on the terms of the bank or company from which you are requesting this type of loan. Whether you pay off the debt on time or not, having any type of loan in your file certainly influences the decision to give a new one. Of course some banks are more rigorous than others. It is considered that regular payers cannot be denied a new loan. But, as it’s already mentioned, there are banks that have a negative view of having payday loans. These users are mostly recorded as unreliable and because of that their credit score decreases. The reason some banks have this type of policy is that it takes a long time (and you know that time is money) to search your credit history if there is an earlier loan in your file. However, there is another type of payment that does not settle obligations on time. If you are one of them, then you need to know that your chances of getting a loan in the future will be much lower.

What are the risks of this type of loan?


Like any task, this one carries with it a number of risks and steps that you must take into account. You must be extremely careful that a short-term loan, such as a payday loan, does not grow into a long-term loan, which is very common. These loans charge a high-interest rate, and if you do not pay on time, you are in a big danger. In fact, if you fail to repay your debt on time, or pay only the loan principal, it means that you will need to roll another loan with which you will be able to repay the interest rate and other fees. This can often be a vicious circle from which the exit seems easy at first, but in fact you are sinking deeper and deeper into debts. Of course, if you have this problem, be sure that it negatively affects your creditworthiness. So you have to take care to be liquid at the time of debt collection, in order to preserve your credit rating.

Another risk is related to credit checks. Many financial institutions do not conduct credit checks to obtain this type of loan. This can only be a negative consequence for you. The reason is the following – you can be granted a loan in an amount higher than the one you are willing to pay. It is certainly a bad policy of the lender, but you are the one who has to think in advance about this move. If you take a loan that you are not ready to pay, it will lead you to open a new one, then another one, and so on without cease. Therefore, it can happen that you do not repay the loans and damage your credit result.

Is a payday loan a good idea?


The answer to this question firstly depends on you and your attitude. How do you treat debt and are you willing to give up part of the income? Look at the bigger picture and decide on this move. If you already have debts behind you and if you are unsure of your ability to pay, then we advise you to find an alternative. Try to borrow money from a friend or save something on the side. Also, paying by credit card and borrowing it can serve as a better solution for your payment of unplanned expenses.

However if you are confident in yourself, if you do not like to defer debt and pay all obligations on time, then this type of loan is ideal for you. True, there are many risks involved, but with the help of, it will be clearer to you how to deal with the payday loan. For a start, you could make a debt repayment plan. If, according to the elaborated plan, you see that there is a possibility of its repayment in the foreseen time, then do not give up.

Before making any decision, think twice about the consequences. Take some time, consider the time, money, expenses you need to settle your obligations. Don’t give up easily and take a new step towards something unknown, but find out in detail about everything before you decide to take a loan. This type of loan brings with it many advantages but also risks, so be aware of your creditworthiness in order to meet your obligations.