A payday loan from PaydayChampion is a small, short-term loan due by your next payday. It’s typically marketed to people for those times when there’s more month than money. And depending on your state, it’s common for payday loan amounts to be around $500 or less.
A payday loan typically works like this:
If approved, you either write a post-dated check or sign an automatic withdrawal authorization form that lets the lender take the money due (principal, interest, and fees) from your bank account after the date of your next expected paycheck. Even though you may be required to leave a post-dated check at the store, many payday loan lenders will require you to return to pay the balance off on your payday.
But if you can’t repay the loan after your next paycheck, the lender might offer to let you roll your current loan over into a new one. This includes the existing loan and fees — on top of the new loan amount and costs — so that now you have an even larger loan to pay off on your next payday.
This rollover practice is how you can end up owing far more than you originally borrowed. 60% of payday loan borrowers end up owing more in fees than they initially took out, and 80% either roll over their loans when they’re due or default within a year, according to the Consumer Financial Protection Bureau. Very few people pay them off on the due date after they first take them out.
What is a bad credit payday loan?
A bad credit payday loan is a high-cost, short-term credit solution specifically designed for borrowers with a poor credit history. Today, payday loans for people with bad credit often refer to loans where repayments are stretched out over several months, but that still come with significant interest rates, which can add up to a relatively expensive total repayment sum.
Payday loans were a common form of borrowing that became the subject of particularly bad press during the mid-2000s. They were designed to be a short-term solution paid back when the borrower was next paid by their employer. Nowadays, the term is more frequently used to reference short-term credit with high levels of interest attached.
Does taking out a payday loan mean I have bad credit?
You do not have to have bad credit to take out a payday loan, and indeed it is the case that people with good credit are likely to qualify for many forms of lending. Despite this, taking one if you have a good credit rating may not be the best decision for you as other forms of credit may be available with preferential rates and terms.
They are generally designed for people who can’t access other forms of finance, and they are sometimes viewed in a negative light. If you apply for a mortgage in the future after getting a payday loan, the lender may be concerned about your approach to money management.
Will having no credit affect my loan?
A low credit score isn’t always the product of poor money management, and sometimes people who haven’t taken out much credit in the past find themselves with a low score. This is often because the credit reference agencies do not have enough information about your financial habits to build a picture of what type of borrower you are.
Having no credit (or only having taken out minimal credit in the past) will not necessarily prevent you from getting approved for a loan. Still, it might mean that the very best rates and terms are not as readily available to you. Only specific lenders may accept your application, but fortunately, many lenders are willing to consider applicants who do not have an extensive credit history.
Will having a bad credit score automatically decline my application?
No, having a bad credit score does not mean that your application will automatically decline. Many US lenders are willing to look beyond your history to the specific circumstances affecting a borrower, mainly whether their current status will allow them to repay what they owe as it falls due.
If you have an awful credit score, there might be only a limited number of lenders who are willing to consider your application. Nobody is guaranteed approval, but a poor credit score will not always prevent you from borrowing emergency cash.
What are some alternatives to payday loans?
Luckily, payday loans may not be your only option if you need money. Even with bad credit, you may qualify for other types of loans instead.
Payday alternative loan
If you’ve been a federal credit union member for at least one month, you may qualify for a payday alternative loan. Some federal credit unions offer these small, short-term loans — and they come with more-reasonable fees. You also can’t borrow more than three payday alternative loans within six months.
Asking for an extension
There’s no shame in asking for help when you need it due to a financial emergency, and requesting an extension on your bills might signal to your creditors that you’re sincerely trying to pay them. Creditors may be open to working with you to create a more manageable payment arrangement rather than see you default on your bills altogether.
Small personal loan
Finally, consider a small personal loan for bad credit. You may not qualify for the best interest rates if your credit needs some work. But even if you are eligible for a personal loan with a high-interest rate, it will likely still be cheaper than a payday loan. And while some lenders may process your application in time for same- or next-day financing, others may take a while to review your loan application.