Pay day loans may once have been the preserve of those with no other means of borrowing necessary funds to get by, but these days more people are turning to them. Those who once had good credit may have lost it during tough times, whilst others are maxed out on available credit. Some just never want to fall into the credit card trap and prefer the ease of acquiring a pay day loan without credit.
One of the convenient features with pay day loans is that no one credit checks to see what your Fico score is. Rather than assessing your risk by considering your past financial dealings the lenders look at your apparent ability to repay the loan now.
As the loans are intended to be short term it is the validity of your current income which is taken into consideration and those with wages in the region of $1000 per month, or social security payments over $800, are seen as viable borrowers as long as they have a current bank account. Proof of this is all that is required in most instances to have an immediate decision made, rather than a finger biting wait for a bank to make a slow decision.
There are also instances where payday loans can be used advantageously by those who need a short term loan but don’t want to apply through more traditional financial institutions as they don’t want their application registering with the credit reference bureaus as this can have an adverse impact on their current credit score.
This puts pay day loans squarely outside the Fico system, but if you take one expecting your credit score to improve because you will repay it on time, then expect to be thwarted, as the whole transaction will go unreported.
Typically pay day loans were introduced as a means of obtaining emergency funds between pay days, with very few questions asked. People who had no other means of obtaining a loan were the prime recipients, and the associated high fees caused uproar amongst the banking industry who called out the usurious rates of some. Accusations were hurled that they ruined lives, which they can do if mishandled, but so can credit cards when they are mishandled too.
The pay day loan business is regulated today and has gone online, as well as moving into more middle class areas. The fees are upfront and can work out as a better deal than other means of borrowing.
The credit card industry has recently undergone some regulation of its own, and if experimentation continues with annual fees on credit cards, more people are likely to turn to pay day loans as they only involve a one off fee, rather than an annual charge and interest rates. They won’t impact on credit ratings in anyway, which could be a bonus to those who are increasingly aware of how important it is to keep their score high.
For those who have no credit history, a bad credit history, or simply want to avoid the credit industry, then pay day loans can offer a quick solution for the short term for necessary funds. If the borrower handles them cautiously and repays on time without coming to rely on them they are an increasingly viable option which are extremely easy to acquire.