For many feeling the crunch of the economy, payday loans can seem like a god-send. With advertisements talking about fast cash now with low fees, payday loans seem like a great solution to a common problem. Many people wonder though that if they take out a payday loan their credit score might be adversely affected. After all, when one usually takes out a payday loan it is due to mostly dire circumstances. But is there any truth to that statement?

In short, no, taking out a payday loan will not adversely affect your credit score. It is everything that happens afterward that could adversely affect it. Payday loans are notoriously viewed as predatory lending loans with extremely high interest rates and very high default rate. If a payday loan is not repaid and falls into collection this is when your credit can be adversely affected.

Shocking statistics surround this pseudo-legal industry. Did you know that 76% of payday loans in the US are repeat loans, or loans that are being used to pay off the original? This factor alone should be enough to scare one out of taking out a payday loan. Additionally the government tries to regulate these industries, albeit unsuccessfully. The lowest APR cap for a credit card is 16-18%. The lowest APR cap for a payday loan? That would be in the 156-175% range. That means if one borrowed 300 EU (the average amount for a payday loan) the APR on it that they would be paying back is 468 EU, and that is at the bare minimum.

So do payday loans affect your credit score? Not if paid off successfully. However with an APR in the 156% range it can be very difficult to pay off these loans and many people often default on them and that is when your credit score is negatively affected.

But what can one do when their payday loan is about to fall into default. In short the first step should be to contact the lender about working out a payment plan. One should look at their finances, realize that this debt is at their top risk of defaulting (one of the worst things that can happen to ones credit score) and budget accordingly to pay off this loan in as fast as possible. Another viable option is that if one is in favor with their employer, talk about getting a pay advance with them. This could help avoid the entire situation of taking out a payday loan or enable the consumer to pay off their loan with as little interest as possible.

Additionally there are many government agencies that specialize in helping consumers out of these forms of debt. Payday loans are viewed as predatory loans and it is no surprise that there are helpful companies that want to help consumers get away from these predators. It is a shame that in economic times like these predatory practices still exist, but at least help is just one call away.