Why you should NEVER take out a payday loan
Are you considering taking out a payday loan? Take our advice and consider all the available options first. Payday loans may seem like a quick fix to a short term problem. But, they can seriously jeopardise your credit score, and risk your chances of being approved for future credit, especially a mortgage!
6 years bad luck?
Payday loans can significantly reduce your ability to get a mortgage, even if paid on time. Lenders use your credit report to check your repayment history, which contains records on bank accounts, credit cards, loans, overdrafts, mortgages, mobile phone/s and some utilities payments, from the past 6 years!
Payday loans are associated with financial instability, so if you are looking to buy a property and have had a payday loan within the past 12 months, you will not be able to get a mortgage. Similarly, if you had a payday loan a few years ago and only have a small deposit, your chances of getting a mortgage are restricted and will likely be at a far less favourable rate!
Alternatives to payday loans
If you need some extra cash, there are other options which can be far cheaper – so long as you can afford the repayments!
Most banks offer a 0% interest overdraft with their current accounts, allowing you to gain access to a reserve amount of cash. You can spend on your card and make withdrawals from a cashpoint, up to the limit the bank agrees with you.
Interest rates are at an all-time low, so it’s a good time to get a loan. However, you should only ever borrow what you need and repay it as quickly as possible – you won’t want to pay any more interest than is needed!
A credit card will enable you to spend on your card up to the agreed limit. This is fine, so long as you can afford to repay what you have borrowed at the end of each month, to avoid having to pay any interest.
Many credit cards now also offer 0% interest for 12 months+ on balance transfers, giving you plenty of time to repay the money you borrow! This could be a great option if you have a good credit score and are able to make the repayments. Bad credit? There are still options available, but the time you have to make the repayments may be shorter. However, you will likely have much longer than you would with a payday loan!
Watch out! Make sure you know how long the interest-free period is for and don’t go over the agreed limit – you won’t want to be hit with any additional charges. Remember to also never withdraw any sum of cash on your card, as you will pay a fee for this which could be hefty!
Credit unions and CDFIs
Credit unions and Community Development Finance Institutions (CDFI) aim to assist people who may not be able to get standard financial products and services available on the market. They offer loans that are similar to payday lenders with generally cheaper interest rates.
If you are interested in obtaining a copy of your credit report, you can do so by signing up with either Experian, Noddle or Equifax.