Same-day loans, also known as payday loans, are a type of short-term loan that can provide quick access to cash for individuals facing unexpected financial emergencies. These loans are typically for small amounts and are meant to be paid back within a few weeks or months.
In the UK, there are several lenders that offer same-day loans, and they can be easily applied for online or in-store.
You might wonder how a payday loan affects your credit score. Many short-term lenders will overlook a bad credit score if you can afford the loan with your income, but what about if you need another type of credit later?
Here is a guide to help you.
Convenient but Risky If You Fail to Repay
Despite the convenience and speed of same-day loans, they can have a significant impact on an individual’s credit score. This is because these loans are often associated with high interest rates and short repayment terms, which can make them difficult to pay back. Additionally, if a borrower is unable to repay the loan on time, it can lead to late fees and additional charges, which can further damage their credit score.
Short-term Loans Are Unsecured
One of the main reasons that same-day loans can have such a negative impact on credit scores is because they are considered high-risk loans. This is because they are typically offered to borrowers with less-than-perfect credit, and they require no collateral. As a result, lenders charge higher interest rates to compensate for the increased risk of default.
Rollover Fees Make It Harder to Repay
Same-day loans are often associated with rollover fees and other charges that can add to the overall cost of the loan. If a borrower is unable to pay back 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 pay back the loan.
Less Time to Repay Your Loan
Another factor that can negatively impact credit scores is the short repayment term of same-day loans. These loans are typically due within 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 result in late fees and additional charges, which can further damage their credit score.
What Are You Repayment Terms?
It’s 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 can make them less harmful to credit scores. It’s important for borrowers to carefully research and compare different lenders before applying for a same-day loan, to ensure that they are getting the best deal possible.
Keep Your Credit Score Intact
Same-day loans can provide quick access to cash for individuals facing unexpected financial emergencies, but they can also have a significant impact on an individual’s credit score. This is because these loans are often associated with high interest rates, short repayment terms, and additional charges.
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 you employer for an advance or your peers for a personal loan.