Will payday loans hurt your credit score? Can lenders see cash advance loans on your credit report?
Below we try to answer these questions and more. Today, borrowers have no shortage of questions about getting short term loans online and how it will affect their credit score, but it’s rare to find any straightforward and honest answers. With more than 30 million Americans taking out payday loans each year, it’s time to get to the bottom of this. Do Payday Loans Show Up on Your Credit Report?
But before we start, let’s cover our bases first. When taking out a payday loan it’s important to consider the fees, restrictions and repayment period carefully. Payday loans are an expensive form of credit and can be dangerous if not handled responsibly.
Payday Loans and Your Credit Score
To make this easier we’re going to assume that after you take out a payday loan you will repay it on-time according to the loan terms. If everything goes as planned, the payday loan will not affect your credit score. In fact, it might not even show up on your credit report. Most payday or cash advance lenders do not report to the major credit reporting agencies unless the loan goes into collections.
But what if you need to roll-over the payday loan again?
Rolling over a payday loan means that the lender will extend the repayment period for another fee. This extra time to repay the loan can help borrowers get back on track with their finances.
However, this is where many borrowers get into trouble. The fees begin to add up quickly faced with short repayment periods. Considering the average payday loan gets rolled over 6 times, a borrower will pay over $270 in fees to borrow $300 in principal.
As long as you continue to pay the additional loan fees, rolling over a payday loan will not affect your credit score. But, if you miss a payment or are unable to pay off the loan, your credit score may be affected. After a loan is sent to collections it will be reported to the major credit bureaus.
Avoid Late Fees with Payday Loans
As we pointed out, payday loans can be an expensive form of credit. However, many Americans choose to use payday loans because the finance charges are often cheaper than the alternative late fees.
For instance, an overdraft fee could cost as much as $35, plus an additional $35 when the account is overdrawn for five consecutive business days. On the other hand, payday lenders only charge $15 for a $100 two-week loan.
But it could get worse. If you don’t have enough money in your bank account when you write a check, you could face a $35 Non-Sufficient Funds (NSF) bank charge plus a $35 bounced check fee from the merchant. Unfortunately, if you write multiple bounced checks you could face these fees each time.
Bounced checks at a retail store will not appear on traditional credit reports. However, if you write a check to a company that reports to the major credit bureaus, the late payment could affect your credit score.
The dangers of making late payments are just waiting around the corner. From late payment credit card fees to lowered credit limits, the consequences can be harsh. Not to mention the embarrassment of receiving utility shut-off notices and the associated fees for falling behind on your payments.
In certain situations the fees for making a late payment can have far greater consequences than the costs of taking out a payday loan. But the benefits need to be carefully reviewed first.
Alternatives to Payday Loans
Missing a payment can often be more costly and damaging to your credit score than taking out a payday loan. There are other short term loan options available. If you need to pay your bills but are struggling to make ends meet you should consider cheaper types of financing.
Where to find other short-term loans:
- Credit Card Cash Advance
- Open a Line of Credit
- Ask Family or Friends for Money
- Get a Personal Loan Online
- Use Peer to Peer Lending
A new alternative to payday loans and personal loans is peer to peer lending. It allows you to get an unsecured personal loan without a bank. Services like Prosper and LendingClub connect borrowers to individual lenders. The interest rates for peer to peer lending are often lower than other types of loans and there are fewer fees. Loan amounts range from $2,000 up to $35,000 and you can get an instant credit decision online.
Although payday loans are expensive, they may be just what you need to get by. Feel free to share your tips with our community. What are your experiences with payday loans and how has it affected your credit score?