Is a Credit Check Required for Payday Loans?

Payday loans are a modern way of securing cash fast. They are far more accessible than most other lending options available and therefore are often sought by those with a poor credit rating. However, in the most part applications will subject to some form of credit check.

When you apply for a standard loan with a repayment period of between one and five years the likelihood is that there will be a lot more money involved and therefore the lender needs to be careful about who they give the cash to. Therefore they have to run a stringent set of tests to establish the credibility of each applicant, this includes a credit check.

Payday loans operate in a slightly different fashion. They are a short-term borrowing solution and have to be repaid (in full) at the next available date - i.e. when your salary lands in your bank account. As a consequence it is far more important to the lender that you will have the funds available then, without being overly concerned about the long-term likelihood of repayments.



Therefore the credit checks carried out for this kind of cash advance are far more limited and are likely to only impact those who have the poorest scores. More important is your salary, as this will be a determining factor in how much you can borrow and your ability to pay it off. If you are paid far in excess of what you're trying to borrow then there's a decent chance you'll have your application accepted - regardless of the credit checks.

The accessibility of finance is something that payday loan providers advocate. Whilst they do charge a fair amount for the privilege, it is important that people who can afford the repayments are able to get access to the money they need.

The interest rates are rather high, which accounts for the larger than usual costs, however it is this APR that allows the lenders to take greater risks. If somebody should default they will be subject to further fees and interest, so it's important that you only ever borrow what you can afford. As long as you are fully understanding of the loans, how they are charged and what you need to do then there should be no issues.

In the unlikely event that your application is unsuccessful you can try to access other payday loan providers. Often this won't have a massive effect on your credit rating, but it may be that other lenders can accept greater liability and will take on those who may be deemed to be 'riskier'. You might even find that some advertise that they don't use credit checks at all, which of course would mean that your chances wouldn't be limited due to your past financial issues.

So whilst in the most part payday loans will be dependent on a credit check, this isn't necessarily something that you should be concerned about. Many companies use this as a cursory way of determining your risk factor and will place greater weight on your earnings.

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Payday loans, as a general rule, are a far more accessible type of finance. They are designed as a short-term borrowing solution and carry a higher interest rate than any other loan as a result. Because of this increased APR and lower levels of lending, the providers are able to take greater risk with who can receive a payday loan.

This is a regulated industry though, which means that the onus is on the lenders to provide loans responsibly. As a consequence there are stipulations that applicants must meet if they are to be eligible for a loan. For instance you will need to be over 18, have a valid bank account (often with a cash card) and be employed.

The amount of money that you earn (after tax) may also be called into question. For instance, it is unlikely that a payday loan will be granted to somebody that receives less than 500 pounds per month (even 750 in some cases). They certainly won't be given to those who don't earn enough to cover the entire repayment.

Most payday loan providers will run some form of credit check. However, this won't be as stringent as most banks or other lenders. The reason for this is simply that the financing is only being provided over a strictly defined short period. Therefore they don't need to worry about their long-term potential for paying the total sum back. As long as the payment from their employer will comfortably cover the total loan amount, then the credit rating is secondary.



Of course, if your credit rating is extremely poor then you might find it difficult to get a loan from any reputable lender who uses a credit check during the application process. There are some payday loan providers who don't carry out these checks, so you might be better advised to try one of these first. Although if your credit rating is poor and you don't have sufficient funds to cover the new loan it might be worth seeking professional advice rather than creating further debt.

Payday loans are fine for anybody who has hit a temporary cash shortfall, but they aren't a 'get out of jail free' card. If you have to borrow more to pay off your last loan then eventually you will hit the buffers. Interest payments will soar and your original borrowing level could be greatly multiplied. This will invariably lead to further debt and will only deepen your issues.

So when seeking a short term borrowing option such as this, you really need to be fully aware of what you're signing up for and do your maths to ensure that you will be better off for it. If you find that actually it's going to plunge you into debt that you can't afford, you might be better looking for alternatives - even if you do have poor credit.

The good news for responsible borrowers, who have perhaps had their credit rating tarnished by poor money management a number of years ago, is that payday loans do offer a worthwhile and accessible solution. Perhaps you've overspent this month or have had an influx of unexpected bills and are struggling to cope. If this is the case, a payday loan can help you to spread the cost of repayments over a couple of months and allow you to avoid more costly bank charges.

Whatever the size of your current debt mountain, looking for extra finance can be stressful. However if you have been rejected elsewhere due to your poor credit rating then your stress levels may be heightened yet further. Apart from those who really can't afford repayments, payday loans are generally available to most full-time workers over the age of 18 who have a bank account. So if you're looking for a quick solution this might well be the answer.

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