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Same-day loans, also known as payday loans, are a type of short-term loan that can provide quick access to cash for people facing unexpected financial emergencies. These loans are usually for small amounts and are supposed to be repaid within a few weeks or months.
In the UK, several lenders offer same-day loans, and they can be easily applied for online or in-store.
You might be wondering how a payday loan affects your credit score. Many short-term lenders will overlook bad credit if you can afford the loan with your income, but what if you need another type of credit later?
Here is a guide to help you.
Convenient but risky if you don’t repay
Despite the convenience and speed of same-day loans, they can have a significant impact on an individual’s credit rating. Indeed, these loans are often associated with high interest rates and short repayment terms, which can make them difficult to repay. Additionally, if a borrower is unable to repay the loan on time, it can result in late fees and additional charges, which can further damage their credit rating.
Short term loans are unsecured
One of the main reasons same-day loans can have such a negative impact on credit scores is that they are considered high-risk loans. Indeed, they are generally offered to borrowers whose credit is not perfect and they do not require any collateral. As a result, lenders charge higher interest rates to compensate for the increased risk of default.
Rollover fees make reimbursement more difficult
Same-day loans are often associated with rollover fees and other fees that can add to the overall cost of the loan. If a borrower is unable to repay the loan on time, they may be charged a fee to extend the loan, which can quickly add up and make it even more difficult to repay the loan.
Less time to repay your loan
Another factor that can negatively impact credit scores is the short repayment terms of same-day loans. These loans are usually due in a few weeks or months, which can make it difficult for borrowers to repay the loan on time. If a borrower is unable to repay the loan on time, it can lead to late fees and additional charges, which can further hurt their credit rating.
What are your repayment terms?
It is important to note that not all same day loans are created equal. Some lenders may offer more flexible repayment terms and lower interest rates, which may make them less detrimental to credit scores. It is important that borrowers carefully research and compare different lenders before applying for a same day loan to ensure they are getting the best deal possible.
Keep your credit rating intact
Same-day loans can provide quick access to cash for people facing unexpected financial emergencies, but they can also have a significant impact on a person’s credit score. Indeed, these loans are often associated with high interest rates, short repayment terms and additional fees.
Taking out a same-day loan can give you a helping hand when you need it, but explore your other financial avenues first. You could ask your employer for an advance or your peers for a personal loan.
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