Do payday loans affect your credit score?

When it comes to unexpected emergencies, like a broken-down car or a boiler that’s playing up in the winter, short-term payday loans can be a huge help. They allow you to quickly sort the issue at hand, and then pay back the money borrowed in manageable instalments.

But do payday loans affect your credit score? And how long do they stay on your credit report for? With questions like this in mind, we’ve pulled together some helpful insights to help you make an informed decision on whether payday loans are right for you.

What is a payday loan?

A payday loan is a short-term loan that someone might take out to tide them over until their next payday. This is different from a short-term loan from Moneyboat as we don’t require full repayment the next time you're paid. We give you more control over how you repay the loan, allowing you to spread repayments over two to six months.

Depending on the lender, payday loans usually range from £50 to £1,000, typically with higher interest rates than other forms of credit. If your application is successful, the full amount borrowed (plus any interest accumulated) will need to be paid back in full on your next payday.

Unlike payday loans, which require full repayment on your next payday, Moneyboat short-term loans let you spread repayments over 2 to 6 months – giving you more control over your finances.

Responsible UK lenders have set eligibility criteria for payday loans, which usually involve checking that:

• You’re over 18 years old

• You have a UK bank account

• You’re a UK citizen

Lenders will also consider your credit history, income, and employment status to ensure you’re in a position to comfortably meet your repayments. As a hard and fast rule, the lower your current credit score is, the less likely you’ll be approved for a loan. However, responsible lenders like us will also take other factors into account before deciding whether you can afford the loan repayments.

Will a payday loan affect my credit score?

Maintaining a good credit score is key to long-term financial health. But what about when you need quick cash to tide you over? Will applying for this cause your credit score to dip?

Usually, taking out a payday loan shouldn’t negatively impact your credit score. However, the long-term effect will depend on your reliability when it comes to making repayments. If you fail to pay the money back in the agreed time frame, your credit score will suffer.

So, you’ll need to carefully consider whether the repayments are comfortable and realistic. If not, it might be time to look at payday loan alternatives.

As with any type of credit, if you commit to making regular payments on time, you may be able to boost your score. You’ll be able to demonstrate to lenders that you’re a responsible borrower who can make repayments on time and in full. So, you should only ever apply if you’re confident that you’re in a good position to meet the repayment terms. This is crucial to avoid damaging your credit score and getting into possible further financial difficulty.

How long do payday loans stay on a credit report?

A payday loan stays on your credit report for up to six years. Once it’s there, there’s no way of removing it. That’s why it’s important to consider whether taking short-term cash is worth it.

Does having a loan affect getting a mortgage?

Yes, payday loans may affect your chances of getting a mortgage. If you’ve taken out a payday loan and failed to make prompt repayments, this can signal to mortgage lenders that you’re struggling to effectively manage your money. In their eyes, you may be a high-risk candidate and your application may be rejected.

Mortgage lenders can be particularly strict when it comes to affordability assessments, as they want to see that you’re able to successfully manage your money.

What to consider before taking out a payday loan

So, with the above insights in mind, here are a couple of things to consider before making an application:

1. Explore your options: There’s no need to rush, so take some time to explore other ways to secure the funds you need. Do you have a family member who’s in a position to help for instance? Or could the expense wait and be covered when you’re next paid?

2. Understand the terms: If you decide a payday loan is the right route for you, make sure you fully understand the terms. Make sure you’ll have enough money to repay the loan on the deadline, and ensure you’re aware of how much interest you’ll be required to pay.

Moneyboat are here to help

Here at Moneyboat, we offer support to customers across the credit spectrum. With flexible and fair short-term loans ranging from £200 to £1500, we offer funds to those in need of cash to tide them over until their next payday.

We assess each application on a case-by-case basis, carrying out credit and affordability checks to ensure applicants are in a comfortable position to meet the deadlines. Doing so allows us to help protect credit scores in the process.

Payday loans aren’t the right route for everyone, but for those they are right for, they can be a huge help when it comes to covering life’s unexpected emergencies. If you’re considering applying, carefully read the terms, ensure you’re able to meet the repayment terms, and commit to effective monthly budgeting. And if you don’t like what’s being offered, take a look at our short-term loans which can be repaid over six months – making it easier to budget than with a traditional payday loan.

Lastly, while convenient, payday loans aren’t a long-term solution. It’s a good idea to create a dedicated emergency fund which can safeguard you from any potential future financial surprises.

If you’ve got any additional questions or you’re worried about money, you can always contact National Debtline or StepChange for free advice.