One of the most common requirements of lending companies for borrowers to comply with is at least a year of credit history. Lenders use it as the basis in evaluating the prospective borrower’s performance on how he manages his account. If you are just starting to get credit, it is difficult to get and pass this criterium. However, there are now payday loan lenders who offer small payday loans. This is a great relief for individuals who want to establish their credit for the first time especially students who are fresh from college and starting their first jobs.
The Importance of Credit
Most of our needs today are obtained through credit. We use credit cards to buy personal things. Even during cash emergencies, credit cards are ready sources of funds. However, there are urgencies that even credit cards can’t provide if you do not qualify. So we use other funds like small payday loans. These cash loans are short term that could be negotiated in $100 to $1,500 amounts. You can pay them after 14 days or at most 30 days. There are however some lenders who allow their borrowers to pay in installments. This arrangement gives the borrower the opportunity to settle the loan earlier and save some money on interest.
Small but Costlier
Payday loans are known to be small. Do you know that this is one of the reasons why they are costlier in terms of interest? Yes, they are charged higher rates because they are insignificant. Lenders contend that it would be impractical to charge the regular 7% in an APR to a loan of say $100. This earns only $7 in a year or $0.60 per month. Since payday loans are due in two weeks, who would invest in such a venture in order to make $0.30 in half a month per every $100 loan? It is really not feasible and practical. Lenders try to compensate sky high rates (36% to 780% in APR) by fast deposit of the loan and no credit check or no faxing requirements. Even those individuals who have bad credit histories can borrow as long as they can show proof of steady sources of income including their salaries.
Bad Credit Scores
Small payday loans with no credit check are now fast becoming the favorites of people who are not necessarily responsible borrowers as shown by their low credit scores. Lenders have finally come to realize that there are people who are really creditworthy without their fault or of their own making. There are borrowers who were victims of erroneous credit scores or something beyond their control happened so that their previous payments were affected. Likewise, it is a fact that even good customers suffer from financial difficulties once in a while. Besides, short term payday loans normally do not reflect a real credit score. What is also entered in the credit reports are payment histories of the customers on their long term transactions.