We live in an age where we relay on credit for buying things, paying bills and making ends meet. We use things like credit cards and lines of credits to help us pay for things in-between pay periods so that we can all live a little more loosely. Using credit wisely, is important to build a strong credit history which is also important for demonstrating how “creditworthy” you are as a borrower. Creditors view borrowers who have multiple trades and pay their bills on time as ideal clients and would often approve for more credit if the borrower decided to apply.
Having a strong credit history is especially important when it comes time to applying for a mortgage. Banks like to see borrowers who have demonstrated a strong ability to repay loans, make minimum payments and utilize a reasonable amount of their available credit.
However, when it comes to payday or “cash advance” loans, things are a little different. Even if you are making the minimum payments, banks tend to view this type of borrowing in a negative light. Payday loan advances are one of the worst type of credit options one can apply for various reasons. They are usually high interest loans that have a high risk of repeated borrowing that usually furthers debt and not reduce it. Most people that seek payday loans have limited options and relay on the service repeatedly. Since these types of loans are designed to encourage repeated use, there is a large potential for a borrower to use this type of service over and over again.
Its for these reasons that banks don’t like to work with potential borrowers that utilize payday loans because the risk of default is much greater. If you currently own a home, there are other alternative options that may be better for you in obtaining a solution that does not impact you in the same way. Pay day loans should be avoided as much as possible and should only be considered when all other options have been exhausted. It’s also important to have an exit strategy for the loan and discipline to not fall into the payday loan trap!
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