A payday loan is the simplest means for Canadians to acquire a sum up to $1500 sum of cash on an instant basis. And, that too against their next paycheque. It is one of the most common ways to arrange funds for salaried individuals. A majority of Canadians facing sudden financial shortages like failure to pay the electricity bills, car repair expenditures, medical bills, and expenses like that find an easy way out to arrange cash via payday loans.
But the most common question people ask is whether payday loans affect credit scores or not. So, in this blog, we will be answering this question in detail as to do payday loans affect the credit scores of people and what factors they constitute. But before moving further, lets’ check out some information on credit scores.
Know Some Background Information on Credit Scores
Credit scores are extremely valuable numbers for borrowers to showcase their credit history. The scores are based on your current lending, credit card dues, outstanding loans, payment history, and other related factors. These scores actually showcase your capacity to handle borrowings at the moment and in the past as well.
Now, what is the exact value of a fair and bad credit score? Well, it depends on the credit bureau which is calculating the same. In Canada, there are mainly two operating credit reporting agencies called Equifax and TransUnion. Both the agencies have their set scoring table for borrowers to check their credit ratings.
Now, you can understand from the above table how a particular credit score affects your borrowing capacity. You must be thinking here, do payday lenders check the credit ratings of borrowers? Well, the answer to that is yes and no. There are few lenders who only validate your personal information like place of residence, address proof, contact details, bank details, and salary details to give final approval. And, they do not bother to go through the detailed credit reports from any of the agencies.
It is because credit check does not come for free. Merchants and lenders have to pay a little price to grab credit reports from the agency. On the other side, some lending companies do follow a stringent credit checking process while offering short-term loans like payday. They check your self-report related to how long you have been working as a salaried individual in your current job, if your bank details are correct, and do you have a balance in your bank account or not.
In What Condition Does Payday Loan Affect the Credit Ratings?
In general, instant cash loan like payday offering does not affect the credit scores of a borrower. But on the flip side, if you fail to repay the amount within the specified time, then there would be repercussions on your credit ratings.
Want to know how? Well, read it below.
Check Bounce: As you already know, the borrower has to give a cheque of the total amount of the loan along with additional fees to the lender well in advance. It is kept with the lender to cash in the cheque on the due date. But, what if you do not have enough funds in the bank account. In this scenario, your cheque will be bounced.
Directly, it will not affect your credit score. However, when lenders face the cheque bounce, they inform the same to the collection agency who reports to the credit bureau. And, ultimately your score goes down in the report. This way you can understand that payday loans can actually affect your credit ratings.
Unpaid Amount: Another scenario in which you could have low credit scores in the profile is payment failure. Sometimes, borrowers could not arrange the funds on the due date and fall into the rolling-over debt cycle. In this situation, lenders directly report to the collection agency again who go straight to the credit bureau.
This negatively affects your credit score in the end. Not just this only, payment failure effect on your credit ratings can last up to 7 years, even if you pay the full amount to the collection agency. According to the National Debt Relief, a payday loan is much expensive and risky as compared to the standard short-term or long-term loans. A small mistake could end up in suffering from low credit ratings.
Lawsuits: The worst of all is the situation in which the debt collection agency sues you on the part of not repaying the loan on time and regular payment failure. So, if you do not show up for the case or might lose it, this will affect your credit score for up to 7 years or more.
It is better to understand the fact that payday loans can or cannot affect your credit ratings. Depending on the circumstances like a rolled overpayment, failure to meet the deadlines, or keep on adding the interest rate and late payment fees. In fact, 80% of the payday borrowers face this kind of problematic situation when applying for this financial offer in an unplanned manner.
How to Come Out of Affected Credit Score Situation?
There are few ways that help you stay immune to a bad credit profile while applying for payday loans. Just follow the below-mentioned points.
Do Not Apply Hastily: It is best recommended not to make a frivolous payday loan application if you are not sure of the repayment on time. See your financial condition first and then make up your mind.
Be Careful of Repayments: You should not just apply for a loan instantly. Better to read some terms and conditions and then wait for few days to analyze your monetary situation. If there is anything risky you find about the loan offer, then avoid applying for it. It is better for you to face rejection than confining yourself in the never-ending debt cycle.
Apply Through Genuine Lender: Always prefer to apply for payday loans online through a certified and licensed lender. It is more important to have all the interest charges, late payment fees, and additional fees details to know well in advance.
If you find Guaranteed Payday Loans No Matter What Canada be your life savior at the moment to handle the crippling fiscal situation, then you can get in touch with us. We are here to provide you much-needed financial help round-the-clock along with detailed information on short-term loans against your next paycheque. Just go through the relevant information and ideally apply for a loan that will make your life debt and stress-free.