Do Payday Loans Require Good Credit? - An Expert's Perspective

Do you need quick cash but have bad credit? Learn about the requirements for getting approved for a payday loan and alternative options.

Do Payday Loans Require Good Credit? - An Expert's Perspective

Payday loans are a popular option for those with bad credit who need quick access to cash. Around 12 million Americans use payday loans each year, according to the Pew Charitable Trust, and most of them don't have access to a credit card or savings account. Many payday lenders don't even perform a credit check, understanding that most borrowers looking for payday loans don't usually have the best credit. To offset the increased credit risk, lenders charge higher interest rates and fees. To qualify for a payday loan, you'll need an ID, a relatively good bank account, and a fixed paycheck.

Paying off a payday loan doesn't usually build credit since most payday lenders don't report payments on time to credit bureaus. The absence of strict credit checks means that even if you have bad credit, you may still be eligible for a payday loan. The Military Lending Act (MLA) provides protections for military personnel and their families. These expanded MLA protections include a 36% Military Annual Percentage Rate (MAPR) cap for a wider range of credit products, including payday loans, vehicle title loans, application loans, deposit advance loans, installment loans and lines of credit open without guarantee. Payday loans can be dangerous and it's important to understand the terms before you apply. Fifteen states and the District of Columbia protect their borrowers from high-cost payday loans with reasonable small loan rate limits or other prohibitions.

If you're considering a payday loan, it's worth checking your state laws first as payday loans may be illegal in some states. Payday loans are short-term cash loans based on the borrower's personal check held for a future deposit or electronic access to the borrower's bank account. Lenders hold checks until the borrower's next payday when the loan and finance charge must be paid in full. Since lenders don't perform a strict credit check when you apply for a loan, applying for a payday loan doesn't affect your credit score or show up on your credit report. Financial experts warn against payday loans due to their high interest rates and fees and recommend alternative loan sources instead.

Long-term loans such as student loans and mortgages carry relatively little weight while credit cards have a “standard weight”. Bad credit debt consolidation loans have stricter approval requirements but generally charge much lower interest rates and fees than payday lenders. If you're in need of quick cash, there are other options available besides payday loans. You may not be able to get a traditional bank loan but some of these methods of stretching your finances until your next payday might work better than a payday loan. These include asking family or friends for help, selling unwanted items, taking out an advance from your employer or using an online peer-to-peer lending platform.

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