The Dangerous Combination of Payday Loans and Bad Credit

A bad credit line limits your options of obtaining a loan. Lending companies want to make sure that they are lending their money to the people who will actually pay on time. Literally, anyone who applies for the loan can be screened through their credit line. Not only will you experience shortage of options for lending companies but also for the services you can avail.

Most of the companies that offer basic services today credit check those who want their services. As a business, they also have to make sure that their customers pay on time or else they will never be able to continue their operations.

That is why people who are in bad credit are most likely to go to payday loans in case they need cash. Payday loans cater to those persons who doesn’t have a good credit line or even when those who are in bankruptcy. All you need to prove to the payday loan companies is that you have a job which could give you money in the future to pay for the loan you just made. Processing this type of loan doesn’t even take 24 hours. Those who apply for the payday loan may even get the amount they need in an hour or two.

This convenience however comes with a great price. The interest rates of payday loans are among, if not, the highest in lending industry today. Although the amount of money that you can get from the payday loan companies is in small amounts, the interest rate could easily increase the money that you owe the company even if you just miss their payment once.

Eventually the amount you’ll be paying is 100% more than the principal amount in a very short time. The usual interest rate of payday loan companies is at 39% - a higher interest rate compared to the highest interest rate in credit card transactions (30% for cash advances).

When you’re in bad credit avoid this type of financial transaction. This loan is really easy to obtain but very hard to pay. Remember that you are in a bad credit limit and you practically reached that state because you are unable to pay some amount even when the interest rates are lower. Paying off the payday loan will even make it harder for you since the interest rates are higher. As we have indicated, missing one payment will increase the loan amount.

With a bad credit line and an unpaid debt for the payday loan, you’ll eventually end up in bankruptcy. This credit line will affect you practically your whole life. It will take years before you get cleared from bankruptcy and most companies do not offer their services and products to people who were bankrupt in less than seven years. So before bankruptcy happens, be sure to pay off that debt. If you really need money, payday loan is not the final answer. There are other options that could give you an easier rate and a better payment scheme.

One of the well known and practical alternatives for a payment loan is to get the cash advance from the company you are working for. This is usually available in small businesses. Most cash advances don’t have interest rates and if they do, they are lower compared to payday loan companies.

Another option is through credit unions and faith based groups that offer financial assistance. As a worker, the credit union should be able to grant you a loan with lower interest rate. Faith based financial organizations; on the other hand, offer their assistance usually to employees who are not earning enough for the family.