Payday loans are essentially short-term loans that are designed to help borrowers deal with small but unexpected expenses that typically range from $100 to $5,000. Compared to most other forms of credit, these loans are also fairly easy to obtain, which means that even borrowers with a history of bad credit can secure funding.
In fact, anyone over 18 can apply for $255 payday loans on this site, but whether you are approved or not will often depend on the payday lender’s own eligibility criteria. However, while payday loans tend to be relatively easy to secure, it is important to keep in mind that you may have to pay higher-than-average interest rates.
It is common to be charged APRs that go into the triple digits. And since these loans are meant to be paid back in full by the time your next paycheck arrives, they can often be difficult to repay. Furthermore, since the repayments are often recouped via direct debit, it’s essential to make sure that your account has enough funds to avoid the risk of an unwanted overdraft.
Do Payday Loans Affect Your Credit Rating?
Standard credit reports don’t end up showing short-term loans such as payday loans, so your credit score is unlikely to be damaged. However, that does not mean you should not repay your loan on time. After all, defaulting on a payday loan can result in the lender not only charging you expensive late payment fees but also reporting you to the relevant credit bureaus. If this happens, it can severely jeopardize your future prospects of being able to secure funding from other loan providers.
It is for this reason that you should only ever borrow payday loans if you are completely confident that you can afford them. According to CocoLoan co-founder Sarah Ross, “Borrowers must always conduct a full review of their monthly budget and income to ensure that they can afford to make their payday loan repayments on time.”
You should also take into consideration the fact that any loan application can temporarily lower your credit score, which is often caused by lenders conducting a hard credit check on you. However, the good news is that most payday lenders tend to conduct only soft credit pulls to verify your information, which shouldn’t affect your credit rating.
What Are The Pros and Cons of Payday Loans?
Before you decide to apply for a payday loan, it is vital that you take the time to weigh the potential pros and cons that often come with this line of credit.
Pro: It is not difficult to secure approval. If you happen to have a bad credit score, payday loans can be a great option to consider since their eligibility requirements are significantly less stringent than traditional loans. All you usually need to qualify is to be over the age of 18, have a steady income stream, and have an active bank account.
Pro: The loan application process is fast and simple. Payday loans can be applied for and secured online via CocoLoan, which means that you don’t even need to leave the comfort of your own home to secure funding. In addition, they are very quick to process, so if you find yourself in a financial emergency, you can often secure the cash you need within the same day of approval.
Con: They have high interest rates and fees. Payday loans are not a smart option for debtors who do not have an immediate repayment plan. They come with exorbitant interest rates and fees that can potentially result in unmanageable debt.
It is not uncommon to find borrowers struggling to repay their loans on time because of their short repayment periods, so many end up applying for rollovers to extend their repayment terms. However, this often results in them accruing even more fees that end up making the loan even more difficult to repay.
Con: They cannot aid you in rebuilding your credit. Unlike installment loans or other forms of personal credit, repaying your payday loan on time has no effect on your credit rating. This is due to the fact that most payday lenders don’t typically report short-term loan borrowing histories to the major credit bureaus.
However, failure to repay these loans can have dire consequences for your credit score and financial health, especially if the lender decides to sell your debt to a collection agency.
When Should I Not Borrow A Payday Loan?
Borrowing payday loans is something that should not be taken lightly, which means that if you already have debt or are not confident of your ability to repay your loan on time, then it is a bad idea. These loans are also not meant to be borrowed to pay for something that can wait or something that is not really necessary.
In such scenarios, you are often better off waiting until you have managed to save enough money or even borrowing from friends and family instead. Furthermore, as accessible as they are, payday loans shouldn’t necessarily be your first choice if you already have a history of bad credit and are trying to rebuild your credit score.
After all, if you fail to repay the loan on time, it could severely damage your credit rating even further, which would make it almost impossible to secure any financing in the near future. You should also avoid taking out payday loans if you intend on borrowing a major loan like a mortgage in the near future, because a payday loan may indicate to other lenders that you are in financial difficulty.
Payday loans are an effective way for borrowers to get access to funding in a hurry to help deal with urgent and unavoidable expenses. They are easy to access and come with less stringent eligibility requirements compared to most other types of loans, but they are expensive, which means that they can potentially lead anyone into a bad debt spiral.
In other words, these loans can be very helpful if they are used correctly, so it often comes down to being able to carefully weigh your options and properly review your financial capability. If you are confident that you will be able to repay the full amount once your next payday arrives, then a payday loan via CocoLoan can be worth it.
Plus, the benefit of using such credit services is that you can compare multiple lenders to find the most favorable rates and terms. However, if you happen to live paycheck to paycheck, borrowing a payday loan is a bad idea and should not be considered, as it will only make your financial situation even worse.
Instead, you will be better off considering other potential avenues of funding such as borrowing from friends and family, requesting a paycheck advance from your employer, applying for a 0% APR credit card, etc.
These options will usually be far less expensive and less likely to complicate your financial security any further. You can also explore other loan options using CocoLoan, such as bad credit loans, which will allow you to borrow funds even if you happen to have a less-than-stellar credit history.