Who uses payday loans?

Payday loans are used by many people, and you might be surprised to know that the majority of the people who use these services are not a low-income bracket. A payday loan is easy to obtain, but there are some requirements in place, such as having a steady job and an active bank account, and all applicants must be at least be 18 years of age to qualify. Consumers of all economic classes are finding payday loans becoming more of a necessity, especially during times of economic hardships.

Why get a payday loan if you have good credit?

Many people who have good credit still get payday loans because they are hassle-free and generally do not require a credit check. If an emergency comes up where someone needs a few hundred extra dollars, those in need can apply for these payday advance loans, never have their credit pulled and keep their finances private from future lenders. The application is quick and simple; there is no need to fax in personal information to complete an application. You get an approval within second of submitting the form, and the money is directly deposited straight to your bank account. Additionally, these loans have flexible payment options, and they can be paid back in installments instead of all at once on your next payday.

Unveiling the misconception

Basically the misconceptions of payday loans are huge, and these loans are taken out by people from all walks of life. If you are in dire need of emergency money, a payday loan is the quickest, easiest and most efficient way to obtain emergency cash.

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Getting a payday loan and paying it back on time can help build a good credit score and preserve good credit in a financial emergency. Flickr photo.

A good credit score is a major quality of life issue for everyone. Building good credit or fixing bad credit isn’t complicated. It’s a simple two-step process. First, always pay all bills on time. Second, borrow money and pay it back. Sometimes a payday loan can help build, preserve or rebuild a decent credit score. With good credit preserved through smart payday loan use, a person can get better deals, it’s easier for them to lease apartments and most importantly, its easier to get hired for a better job when the employer sees a good credit score.

Credit repair starts with a credit report

To build good credit or start credit repair, people have to know their credit score. AnnualCreditReport.com is the official government site to help consumers to obtain their free credit report. Sometimes credit scores contain mistakes that are no fault of the individual. These errors can damage credit and quality of life for a long time if left undetected. Everyone should check their credit reports at least once a year to be sure all the information is correct. Correcting errors in credit reports can take some time, so it should be a top priority for a person trying to build good credit.

Money loans build credit

Money loans factor most in a good credit score. In the current economic climate, banks are very reluctant to make money loans and can’t be considered a reliable source of borrowing for most people. A good alternative is responsible credit card use. Apply for one and use it frequently. But check the fine print on any credit card offer and only choose one with no annual fee and a low interest rate. Don’t ever keep a balance on the card. Paying off the entire balance every month avoids interest charges and shows good personal financial management.

I need money now

Building a good credit score by paying rent, utility bills and credit card balances on time always works perfectly on paper. But sometimes real life throws a monkey wrench into the most carefully made plans. The car dies. A child gets injured and needs emergency care. A toothache turns into a root canal. So now what? A late credit card payment can cost a fortune in penalties and interest. If the check written to make that credit card payment on time bounces, the bank pounces with an outrageous NSF (non-sufficient funds) fee.

Same day pay day loans

To protect a good credit score in an emergency, a payday loan can a practical option. Payday lenders provide a valuable service and are reasonable when compared to default fees of mainstream lenders. For example a $100 payday advance commonly comes with a $15 fee. Compare that with a $100 bounced check with $48 NSF fee. A payday loan can avoid that bounced check fee and the credit report damage that comes with it. Plus, borrowing the money, and paying it back on time maintains the progress being made on building a good credit score.

Short term loans no credit check

The quickest, easiest way to protect a good credit score in an emergency is an instant online loan. Hundreds of direct payday lenders competing to make payday loans can be found online. A quick ten minute payday loan application leads to cash in the bank account the very same day. Payday cash advance firms don’t conduct a credit check. But the borrower must always stay on budget and pay in full at the end of the term, usually 14 days. The peace of mind restored with a payday loan can quickly become another set of problems if it’s not paid back on time.

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Establish Credit

This starts by simply borrowing money — could be with a car loan, credit card or any number of different types of loans. What really establishes your good credit, though, is the way in which you pay back the money that was borrowed, how you handle the money and your consistency in payments. Creditors are basically looking to see if they can trust you with money. Loan amounts and credit limits start out low, but as you show that you can be responsible, you will build your credit, allowing you to borrow more so that you can buy a car, a house or any other major life purchase.

Protect Credit

With all the talk of identity theft, how can you protect your credit from a thief? It is very important that you are mindful of where your debit/credit cards and account numbers are. Only keep the cards you plan on using with you while you are out shopping. Don’t give out personal or account information to parties which you aren’t currently doing business with.

You can also protect your credit by paying close attention to all your billing statements, making sure all charges are legit and for the right amounts. It is your responsibility to report any mistakes on your bill in a timely fashion, usually 30-60 days, and if you don’t notice and report it, the debt is assumed yours and you will be stuck paying for it. Overall, in protecting your credit, vigilance is the cornerstone to keeping your good credit.

Improve Credit

This is often where most people get lost. It’s easy to get in over your head. With our cultural “want it now” mindset, it is all too easy to get behind and feel as if you are drowning in the sea of debt. There is hope; you can restore, regain and get back on track with your credit. It must start by taking responsibility for your debt. You can’t just ignore it. Contact your lenders and try to work out a new payment schedule. Often they will work with you in creating a payment plan that you can afford.

Immediately stop purchasing with credit. If you can’t pay back what you currently owe, don’t add to it. If you have substantial debt, it would be a good idea to contact a credit counselor. You can start with the National Foundation for Consumer Credit – call (800) 388-2227. It will help you find a counselor in your area. Be cautious of debt consolidation companies that offer you a quick fix to all your problems. Remember that it took you time to build your credit in the first place, and that it will again take time to rebuild your great credit.

The state of lending today

Prior to the recession any score of 700 or higher would have no problem finding a lender. Now, rate adjustments begin at 740, with every 20-point drop adding another adjustment. The result of the shift in credit scores is that people with decent scores need to pay more for loans or make quick changes in their credit habits to increase their scores. Some drops in credit scores may even be hidden to consumers. For example, Todd Huettner, president of Huettner Capital, said, “One of my clients always had a credit score of 740. When she went to refinance, she found out her score was at 719. The reason was she put a new washer and dryer on a store credit card. Many store cards are actually revolving credit, which means your limit is essentially your starting balance. So that purchase maxed out her card and caused a 20-point score drop.”

How things changed in the world of credit

Last year the nation’s two largest mortgage lenders, Fannie Mae and Freddie Mac, struggled in the market. Due to the lending crash, both companies changed their definition of “risk.” Any borrower with a credit score below 720 fell under this new definition and is affected by its change. Sean Cragg, VP of sales for Gold Star Mortgage Financial Group, said, “These fees have nothing to do with the mortgage company or its various products and cannot be negotiated away.” All providers of mortgage, auto and personal loans must comply with the new rules. Only financial institutions holding their own portfolios can dictate and follow their own guidelines.

Is there hope for the future?

So the question is: Is there hope for the future in lending? David Chung, managing director of CreditXPert, Inc., said, “There are many factors, including proposed legislation and regulation that continue to change the mortgage lending landscape. In the near term, it is more likely that this benchmark will continue to rise than fall.”

To individual borrowers that means more difficulties in finding funding. Chung added, “Often, lenders will quote rates that include the adjustments, without calling attention to them, in order to avoid a negative reaction from their customer.” What is stable, however, are the general requirements for finding funding. In today’s world of credit, here are the requirements:

• Great credit
• Stable income, with a minimum of two years of steady employment
• Reserves after closing
• Down-payment
• Low debt-to-income ratio
• Good loan-to-value percentage

Being proactive with credit

For any consumer looking for mortgage, auto or personal loans, it is more important than ever to work on credit scores. Chung said, “Virtually everyone can raise their scores by at least 10 to 20 points, sometimes significantly more in 30 days.” It may take some persistence and care, but in the end the savings will be worth it.

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Before a person decides to cosign a loan, it is important to consider the risks involved. Many who haven’t done so have come to regret it. Often, their decisions have resulted in bad credit ratings and the need for emergency cash to bail themselves out of someone else’s debt. Simply put, when a cosigner is required for a loan, it is because the person attempting the purchase is a poor credit risk. Therefore, if the lender, after studying a person’s income and spending habits, isn’t willing to take a chance on lending money, why should anyone else? This may sound harsh and cruel, but it is a reality that mustn’t be overlooked if a person hopes to maintain their own good credit rating.

Emotions and money

Unfortunately, most people make the decision to cosign a loan based upon emotions. After all, the person asking is usually a relative, or a very close friend, who approaches during a time of need. This person has the money for a down payment and the only thing stopping them from finalizing their purchase is their own shaky credit or lack of adequate income. They are told that they can seal the deal, so to speak, if they can find someone else with good credit to sign on the dotted line and claim responsibility for the loan if they default. Most people find it hard to resist a loved one who approaches them to cosign a loan. This isn’t because they want to obligate themselves to someone else’s debt, but because they feel an emotional need to help.

Learning to say ‘No’

It can be difficult to say no to a loved one in need, but it is sometimes necessary to do exactly that. A good credit rating takes time and discipline to build. Having good credit destroyed by someone else’s misfortune or lack of discipline is not something that people look forward to. Therefore, it is important that people learn to say no when appropriate.

Saying ‘Yes’

Of course, there are some who will believe in a person’s ability to pay off a loan despite professional calculations to the contrary. Sometimes this works out for all parties involved and sometimes it doesn’t. Therefore, when one has agreed to cosign a loan on another’s behalf, there are a few things that they should be prepared for.

With car loans and home mortgages, especially, if payments are missed, lenders do not typically contact a cosigner until the car or home has been repossessed. By this time, the damage is done and the repossession has been added to the cosigner’s credit report. A cosigner also may be contacted again to pay any remaining difference between the original loan amount and the below market price that repossessed cars and homes are sometimes sold for.

So, before agreeing to cosign a loan, people with good credit should weigh their decisions very carefully. They must be clear on whether they are feeling led to cosign by their emotions and whether they can afford the risk involved. Being firm and honest about one’s decision to not cosign a loan can be tough, but the result of not doing so can be even harder to bear.