How do payday loans affect your credit record?
Payday loans can adversely affect your credit rating, including when you apply. If you need to take out several loans in succession you’ll be credit-checked each time, which negatively affects your credit rating.
When you miss a payday loan repayment your lender may also inform the credit reference agencies, which can make it more difficult to be accepted for borrowing in the future. Furthermore, if mortgage lenders see that you’ve taken out one or more payday loans, they may decide to reject a mortgage loan application.
Defaults remain on your credit file for six years, so what should you do if you miss a payment?
What can I do if I cannot pay my payday loan?
If you cannot afford your payday loan repayment you should get in touch with your lender straight away. They may be able to offer you an instalment plan that temporarily reduces your monthly amount.
They might also suggest that you roll over your payment to the following month. Both of these options will incur extremely high rates of interest and charges, however, and if you find yourself in the same situation the following month, this is where the debt cycle starts.
A further issue is that some payday lenders demand that borrowers sign a Continuous Payment Authority that gives them the power to take payment from a bank account. This means that money can be taken regardless of whether you need to use the funds for other expenditure, leaving you extremely vulnerable to severe financial problems, as well as high bank charges if you go overdrawn.
