Short-term loans are also known as payday loans. This type of loan is taken out with the intent to be paid in full on your next payday. It is an easy way of solving financial emergencies brought about by medical expenses, broken down car, bills and other personal expenses that your current salary cannot cover anymore. It will lift your financial burden until the next payday. Aside from being able to give you quick money solutions, can payday loans be really helpful?
The answer is yes. Short-term loans can help you when it comes to establishing your credit or improving your rating. It is not very easy to take out long-term loans like mortgages or car loans these days because banks face more and more risks in lending money. They are very careful in checking your credit rating and if they see a hint of doubt, you will get denied on that home loan you have been counting on.
Since payday loans are designed to be paid off in a short amount of time, it shows financial institutions that you are responsible when you pay it off completely on your next payday. It makes them understand that you are not taking out loans that you are unable to pay back quickly. Long-term loans impact your credit rating positively through steady monthly payments. On the other hand, short-term loans create the impression that you are on top of your finances most of the time.
Once you establish a history of taking small amounts of payday loans and paying them back, your credit rating becomes better. Lenders will deem that if you are responsible enough to repay your short-term loans, you will also be responsible for long-term ones.
This should be a small step to take for people with bad credit. Re-establishing a credit rating may take a lot of time and a lot of effort but with the help of payday loans, it is possible. One payment at a time will create a positive rating and eventually, you will be able to earn the trust of lenders again. With a better credit rating, you don’t only get more chances on your next loan application, you will also be given lower interest rates and higher credit limits.
What to Remember About Payday Loans
Keep it mind that payday loans are just supplements to your paycheck until you get the next one. Never take out a payday loan that you will not be able to pay back on the next payday. Since this is a short-term loan, the interest rate is very high. Payday loan companies impose high interest rates on short-term loans so they can make money. If you cannot pay the following payday, expect to see your debt double up in no time. It will then be harder to pay off once the interest charges accrue. As long as you use payday loans the right way and pay them off completely and immediately, payday loans can be very helpful for your financial situation and credit rating.