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Is Pay Day Loans can Ruin Your Credit?

Is Pay Day Loans can Ruin Your Credit?

Payday loans can be very attractive, mainly to those without cash reserves and less-than-sterling credit histories. But be careful that, just because a payday lender doesn’t look into taking care of your creditworthiness doesn’t mean borrowing the money isn’t perilous.

If you are not able to make repayment of the loan on time and if you are failed to get a rollover from the lender, you could have an immediate problem. Since lenders generally ask for a post-dated check before disbursing the loan, the check will be deposited on your next payday. If the check bounces, you go into default and could enter debt-collection hell.

The payday lender will first try to assemble the debt. It might try multiple times to deposit your check or try to withdraw money incrementally from your bank account. When each attempt is failed will likely add some bank charges to your account.

If you trying to withdraw the money is unsuccessful, or you close your checking account, the lender might try to call you at difficult times, having a law firm send you letters and calling friends and relatives.

More failed attempts might prompt the lender to offers a settlement for a lesser amount. Since you what owe involves exorbitant interest, a lender might not affect by a loss in a settlement agreement.

If all else fails, the lender would like to refer your case to a collection agency, which will first try bombarding you with multiple phone calls. Later they may even take you to court if a judge rules in the lender’s favor which can end up in the public records portion of your credit report. If any of these things happen, of course, your credit rating can be seriously damaged, it will make it even harder to get credit. Even before your credit wasn’t good, the payday loan default, fresh collection action will almost certainly make it worse.

Rather than destroying your credit score, notify the lender instantly if you get to know your loan check will bounce and request a payment plan. This might mean higher fees and make the loan harder to make the repayment, but that trumps major credit problems.

Other options include that borrowing the money needed to pay back the loan from friends or family, or freeing funds by postponing payment on a less pressing debt. If you have a credit card, check out the other options like making the payment take cash in advance. You also have the option to write a check on an account with overdraft protection. The overdraft might show the result in a bank charge, but if you can increase the money to cover the bank charge, it might be recommended to tangling with a collection-minded payday lender.

Payday Lenders Prey on the Poor

Payday loans offer payday loans at stores, check-cashing places, pawnshops, and some other banks. Payday loan stores are open longer than the typical working hours of banks, giving you easy authorization to cash regardless of the time of day.

For the amount of a loan plus a fee payday lenders needs borrowers to write a check, which the lender holds. The lender accepts that not to deposit the check until the borrower has received his or her next payment. Since most people receive weekly payments, the normal period of the loan is two weeks or less.

Once the next payment comes in, the borrower might choose to let the check go through, return to the lender and pay in cash, or pay more to allow the loan to roll over. Payday lenders must charge fees for bounced checks and can even sue borrowers for writing bad checks.

The process allows the borrowers who have little or no credit to quickly get cash. Payday lenders do not check borrowers' credit scores, nor do they report the activity of the borrowers to credit bureaus.

Lenders require borrowers must able to earn at least $1,000 a month and to provide the following:
  • Correct Home address
  • Valid account number
  • Driving license
  • Social Security number
  • To verify employment, wages, and pay dates A couple of pay stubs is provided

Payday lenders often lookout locations in poor and minority neighborhoods.

A typical borrower must have one or more of the following characteristics:
  • Young age
  • Has children
  • High school graduate
  • Does not own his or her home
  • Relies on Social Security checks
  • does not have access to any other type of credit

Nearly everyone who meets a payday lender has been there before. It is unexpected for a customer to go to a store, make a repayment for the loan and accompanying fee and never return. One-time customers account just for 2% of payday loan business.

An estimated 90% of borrowers take five or more loans a year, with an average of nine. Each loan comes with an initial fee, which is compounded every time the loan rolls over.

The common characteristics of payday customers: