Do you need good credit when you are applying for a payday loan? Learn whether or not lenders check your credit in this guide.
Do you need a quick and easy loan to pay your bills? Do you want to avoid paying your bills late because you get your salary late? If so, payday loans are the best solution for this kind of problem.
In 2016, around 10 million Americans claimed they wanted to gain access to payday loans. This is because they’re easy and quick to apply for. While it’s convenient, it’s good to ask if lenders will perform a credit check.
Read on below for the answer to that question. We’ve also included some tips on applying for a payday loan.
1. What Is a Payday Loan?
A payday loan is a short-term borrowing of money. It comes with high-interest rates and most likely with other fees as well. Often, payday loans don’t go past $500 yet some states allow for a higher limit.
Paying off a payday loan often happens during the borrower’s next payday. Lenders also collect when the borrower receives money from another source of income. The typical payback date of a payday loan can range from 2-4 weeks from the date of the loan.
The lender provides you the loan through check or cash like with most loans now. Other ways to receive it is through a deposit into your account or load onto a prepaid debit card. You can also pay the loan via cash or check.
You can’t get a payday loan in some states. Some states have laws that don’t permit it. Or, payday lenders can’t do business at the interest rate and fees permitted in those states.
2. Do Lenders Do a Credit Check for Payday Loans?
Do lenders check your credit when you apply for a payday loan? No, you don’t need to undergo a credit check when you’re applying for a payday loan. Credit checks aren’t part of the qualifications you need to get a payday loan.
What you do need are the general requirements. This includes that you need to be of legal age. You must also be an American citizen or a permanent resident of the United States.
You also need a checking account, valid phone number, and email address. As with most banks and other money lenders, you need to provide proof of regular income. Finally, you need to be a resident of a state where payday loans are legal.
Submit these requirements when you apply to a lender of payday loans. Do note that not all applications get approved. However, lenders for payday loans are less strict than lenders of regular loans.
3. How Do Payday Loans Work?
When you apply for a payday loan, one of the first things the lender will ask for is a valid paycheck and a checking account. These items can then give you instant approval. When you’re approved, you write a post-dated check to the lender.
The check should include the amount you will borrow plus the fee for borrowing the cash. The average fee could be a $15-$30 flat fee for every $100 you borrow. They often state it as an Annual Percentage Rate (APR).
If you’re unable to repay the lender on or before the due date, he will cash the check from your bank account. Or, you may have provided authorization to withdraw funds from your bank, credit union, or prepaid card account. They will withdraw the money from your account if you don’t repay the loan on time.
Some loans allow you to renew or “rollover” a loan. This happens when the due date arrives and you don’t have the money to pay it back yet. However, renewing a payday loan will still incur extra fees so beware.
In some states, renewing a loan isn’t permitted. Be sure to check with your state laws before you renew your loan. In some cases, payday loans are repayable in installments over a longer period.
You can check out our guide on payday loans to learn more about it.
4. Pros and Cons of Payday Loans
On paper, payday loans may seem like a great idea. However, we need to understand the benefits and difficulties it offers as well.
In a difficult financial situation, payday loans offer instant solutions. The application process and approval is quick and simple. Compared to other loans and credit cards, you don’t have to wait long to get your cash with payday loans.
When it comes to the whole borrowing process, it’s also convenient. You can send your application from anywhere, with no need to book an appointment with a lender. Since payday lenders don’t perform credit checks, it doesn’t affect your credit score.
However, the same goes when you need to improve your credit score. If you pay the loan on time, it won’t get recorded.
A big drawback with payday loans is the high APR or interest fees. A typical payday loan for two weeks has an annual interest rate ranging between 391%-521%. For most people who borrow payday loans, it’s difficult to pay the whole sum back in time.
Most borrowers who get stuck in it choose to renew their loan. In essence, they get a loan to pay off a loan. The fees then add up quicker than their money does.
This is where the payday loan traps borrowers.
5. What to Remember When Applying for a Payday Loan
Before you apply for a payday loan, make sure the lender is legitimate. Also, be wary when a loan provider starts promising guaranteed approval. Legitimate lenders won’t make promises they aren’t sure they can keep.
Also, it won’t hurt if you knew about your credit score. You never know if your credit score may in actuality be enough to get you a regular loan. Regular loans don’t have the same disadvantages that payday loans have.
Before you decide on a lender, you can shop around for other payday loan providers. There’s a chance you may find a lender who offers smaller APR or interest charges.
Finally, don’t borrow more than you know you can pay back fast.
Pay Your Bills on Time with a Payday Loan
That’s it for our guide on applying for a payday loan and if you need a credit check for it. Remember, the smaller your loans, the easier they are to pay back.
The best way to avoid having to get loans is to open an emergency savings account. This will help you cover any financial challenges that come your way. To start saving, deposit 5% of every paycheck into this account.
If you enjoyed learning from this guide, feel free to read our other helpful guides on loans.