Payday loans are short-term loans typically aimed at funding small emergencies, such as unexpected car repairs that do not involve more than £1,000. The fact is that this is a lot of money for a payday lender to offer you. Since the whole amount is to be paid back in fell one swoop in a short time, ideally 14 days, most lenders will cap on £500. Some generous lenders can go up to £700.
In spite of the fact that payday loans are not novel, many borrowers still do not know much about them. Many are under the impression that they do not involve a hard credit check because they are aimed at subprime borrowers.
No lender, including payday lenders, is permitted to lend you money without running a credit check. Every lender has their own criteria for accepting applications. It is likely that one lender perceives you as a risky borrower and turns you down while the other accepts your application.
It would be wrong to say that payday loans are approved without a credit check, but chances are most of them are very lenient about the bare minimum credit rating.
Are payday loans with no credit checks a myth?
An affordability check is a must while signing off on your loan application, including payday loans, and it includes a perusal of your credit report. However, there are some payday lenders claiming to provide these loans without a credit check. Is it true?
Yes, a couple of payday lenders are out there that do not run a credit check, but by no credit checks, they mean hard checks. Soft checks will be made, but they do not show up on your credit report. Soft inquiries are not visible to other lenders.
As soft checks do not let your lender know about your past payment behaviour, you will be charged high interest rates. Payday loans from direct lenders with no credit checks are offered to subprime borrowers who do not want to lose their credit points.
When hard inquiries show up on your credit report, they result in a dip in your credit score. Fearing that their credit score can sharply plunge, borrowers tend to choose payday loans without a hard credit check. As soft inquiries do not appear on your credit report, you do not have to worry about losing your credit points.
What if you have a CCJ?
A CCJ on your credit report can badly affect your credit score. Once it is issued against you, your credit rating straightaway goes to the “very bad credit score range”. A very poor credit score is not appreciated by any lender, including those who accept applications from subprime borrowers.
A CCJ is issued by the court when your lender sues against you. It normally happens when you do not turn to text messages, emails and phone calls and refuse to settle your outstanding debt. Once the judgment is issued against you, you will be obligated to agree to the court orders of settlement. You can avoid having a CCJ appearing on your credit file if you clear your dues within a month from the date it was issued, but otherwise, it will remain for six years as “satisfied” if fully paid back.
The impact of a CCJ cannot be reversed even if it is satisfied. Lenders will perceive you as very risky and, as a result, will charge very high interest rates. Bear in mind that interest rates for payday loans with CCJs accepted are much more than the rates for payday loans with no credit check. A rule of thumb says that you should carefully examine your repaying capacity before using these loans.
Once you fall behind on payments, there will be hell to pay. Not only will you further lose your credit score, but you will unlikely get any loan down the line. In fact, many lenders would not entertain your application for small emergency loans.
Will payday loans affect your credit score?
You do not have to worry about your credit score if you have been paying off your payday loan on time; however, at the same time, do not assume that it will help do up your credit rating. Most of the time, on-time payments are reported to credit reference agencies which help improve your credit score.
This scenario is not possible with payday loans because you are required to pay off the whole debt in one go. The settlement of the debt in a very short period cannot prove your financial commitment. Long-term debts help with improving your credit score because you manage to stick to payments despite the fact that your financial condition does not remain unchanged.
Whether or not you manage to make payments despite changes in your financial condition is what lenders look for. Payday loans cannot help do up your credit rating, thanks to their short-term repaying capacity.
However, if you fall behind on payments, your lender will report the default to credit reference agencies. One missed payment will have an impact on your credit score for six years. Your chances of qualifying for a loan are bleak.
Even though you have been paying payday loans on time, having them on your credit report itself can damage your credit score. It depends on the policy of the lender. Most lenders do not look at these loans positively and conclude that you are bad at money management. Reliance on payday loans is not perceived as a good sign regardless of on-time payments.
For instance, if you decide to take out a mortgage, lenders may be reluctant to give the nod to your application if they find you have been on payday loans. Even if you never missed them to pay back, your chances are not high for qualifying for a mortgage. Ideally, you should not have taken out payday loans in two years before applying for a mortgage.
Are payday loans with no credit checks right for you?
Payday loans have been designed to help tide you over when you are in a tight spot. Their approval is easier than that of other loans, but remember that you should use these loans only when you are in dire need of money. Make sure that the reason why you are borrowing is unavoidable. Avoid using payday loans in case you are not confident about your repaying capacity.
You should practically avoid relying on these loans because they do not have a good reputation. Relying on these loans is used as a sign of poor money management. You should rather look for other ways to deal with emergencies. For instance, create a safety net and generate passive income sources.
The bottom line
Payday loans can be approved despite a CCJ, but they are exorbitant. You may fall into a debt hole if you fail to pay it back on time. You should ideally avoid using these loans unless a CCJ is removed from your credit report.
Try to create a budget and set aside money for emergencies. If you do not earn a lot of money, cut back on your discretionary expenses to stash away money for a rainy day.
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