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"Payday loans no credit check" is a commonly searched phrase on Google and other search engines. If this is what you searched then presumably you don't believe your credit history will help you get further credit. So you'd like to avoid further checks.
However, tighter regulation means credit checks will be made (see box on right) and affordability needs to be assessed too. Frankly if you can't afford repayments you shouldn't be trying to borrow more.
Credit checks are needed:
There are many myths surrounding the payday loans industry and perhaps one of the most dangerous is the idea that payday loans are available with no credit check. If you are looking for a payday loan and you have credit problems then expect lenders to be more risk averse than ever before. The FCA has capped the cost of these short term loans so lenders can't recover the cost of bad debts by charging other borrower more (although you'll probably agree this seems perfectly reasonable). So, lenders will only lend when they they consider the risk to be reasonable. They can only judge this is they look at your credit file. They will use this check to ensure that you don't have a chequered history when it comes to managing credit. A small blemish may be tolerated, but a poor history will probably mean credit will be denied - even if you are employed with a steady income.
So what is the purpose of a credit check? Essentially, it’s all tied in with making sure that someone who is applying for payday loans is a good risk and will make the repayments. This might sound rather obvious but it’s very easy to get this wrong. There’s a dual purpose in credit checks, which benefit both the borrower and the lender. From the lender’s point of view, an applicant who passes a credit check is a lower credit risk and there is less chance that the loan will not be paid back. An applicant going through a credit check has the advantage of knowing that they are judged as a "good risk".
A credit check looks at the applicant's repayment history for any form of credit - so this could include gas and electricity where the payments are made after the utility has been used. It will also include mortgages and credit cards and other personal loans. The record also includes country court judgements and default notices. And having a "blank" credit history is as detrimental as having a poor one. The fact is that credit providers want to see a good history on time payments. It gives them confidence that you will also behave that way with them.
Affordability is an additional test for a lender to conduct. If you can't afford repayments then the lender has a duty not to lend. In simple terms if your outgoings are greater than your net income then you have nothing left with which to repay a loan. So a lender could not lend (even if your credit history was perfect).
Credit checks are a key part of the tightening up of the payday loans industry that is helping to make it a fairer and better place – and to take us back to the days when payday loans were an effective way of making your finances work. Payday loans were always meant to be a temporary form of finance that was offered to anyone who was in the middle of a financial emergency and needed a relatively small loan to help tide them over until the next payday. That’s why most payday loans are for under £1,000 and are repaid within the month.
There are plenty of other options for longer term loans – and loans for higher amounts – so if you’re looking to borrow money for more than a month, or more than £1,000, then they may be a better choice. However, for short term finance, payday loans can be a great option, particularly as they’re often available at speed. The application is made entirely online and the entire process is short and sweet – including the credit check. You could have the loan in your account within an hour of making the application, that’s how fast and simple it is.
If you do have credit problems then there may be other products that can help you.
1 Subject to application being approved by the lender. Not all lenders are able to provide up to £1000.
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