Payday loans are a convincing option when you want to achieve financial stability soon after bankruptcy. These loans may seem viable on the surface, but you should have in-depth knowledge about filing for bankruptcy and payday loans before applying.
Hardships increase when you file for a Chapter 7 Bankruptcy as an individual. This article will talk about the meaning of Chapter 7 Bankruptcy, the impact of bankruptcy when applying for payday loans and the implications of such loans on your financial health.
What Is Chapter 7 Bankruptcy?
There are six types of bankruptcy in the U.S. The most common are Chapter 7 and Chapter 13 for individuals.
Chapter 7 Bankruptcy, also known as liquidation bankruptcy, is a legal process where residents can get rid of their debt. You no longer have to repay this money legally. However, this all comes with a twist. The system expects your contribution in student loans, child support, and taxes.
You may have to “liquidate” your assets to pay back the required amount to the creditor. You can save your personal belongings, like your house and car, to an extent.
Finally, filing a bankruptcy will impact your credit score negatively. You will work with a bankruptcy attorney during the process.
Impact of Bankruptcy on Payday Loan Eligibility
Filing a Chapter 7 Bankruptcy can severely impact your payday qualification. Let’s talk about the impacts of the same in detail.
Lenders
Filing bankruptcy gives you a visible history of financial problems. If a payday lender wants to give you money, they will not consider this a beneficial investment. They may consider that you’ll not be able to repay the loan with the required interest in time.
Impact on Credit Score
A Chapter 7 Bankruptcy will reflect on your credit result for up to 10 years. This report will hurt your credit score. Lenders and creditors check your credit score before lending money or helping you buy an asset. Banks may deny you loans with this score.
Public Record and Chapter 7 Bankruptcy
If you file a bankruptcy, it will enter public records. Any pay lender can access this data and check your loan eligibility before deciding on your loan. Moreover, having your name in the public record will hurt your social status.
Lender Policies on Bankruptcy
Lender policies on Bankruptcy may vary for different lenders and loan amounts. Here are some common policies that every vendor considers.
- Lenders expect a high credit score before giving out a loan. You can win the lender over by improving your credit score through the years, even after Chapter 7 Bankruptcy.
- Lenders may ask you to wait for 2-4 years after filing a Chapter 7 Bankruptcy. This requirement is to save themselves from potential non-repayment by the borrower.
- If you’re meeting the lender’s requirements and planning successfully, you are likely to get a loan. However, some lenders may deny your loan due to your bankruptcy records, even if you meet the minimum criteria.
Timeframe for Loan Eligibility After Bankruptcy
You may not find an equal waiting period for all loan types after a Chapter 7 Bankruptcy. Multiple factors become a part of your eligibility criteria and period. Your credit score is likely to recover within 10 years. Further, different loan types have variable credit score requirements and payback periods. Let’s talk about the timeframe for potential loan eligibility in this section.
- Secured loans like car loans take around 1-2 years after discharge. However, you need a co-signer or a hefty down payment to reduce risks.
- FHA Mortgages need 2 years after discharge. The lender might want and allow the mortgage payment with variable expectations and situations.
- The timeframe for credit union loans is 2-3 years after discharge. It would further depend on credit union requirements and present improvement in credit scores.
- Finally, traditional mortgages need a waiting period of 4 years.
What to Consider for Applying Payday Loan After Filing Chapter 7
Getting a payday loan after a Chapter 7 Bankruptcy might feel significant. Here’s a list of the factors you should consider before applying for one.
Long-Term Impact of Getting a Payday Loan
You might feel payday loans are perfect for quick fixes. However, such loans will not help you with financial stability. You will enter a negative cycle of debt after each loan. Moreover, you will be in for high interest rates and fees.
You can use this time to focus on working with better credit usage. You can use techniques like smart budgeting and finding other options to recover from bankruptcy.
Eligibility Of Getting a Payday Loan
Bankruptcy can impact your credit scores significantly. Your financial profile will be affected for 10 years. This credit score will not allow you to get resourceful financial loans. Lenders will not want to risk their money. Even if they consider your constant income and decide to lend you a loan, you will face high-interest rates.In these situations, some people consider payday loans.
However, it’s crucial to understand how Payday Loans Work before using them, as they can trap borrowers in a cycle of debt due to their short repayment terms and high fees.
Getting Trapped In Debt
People market payday loans as a quick solution to financial problems. The high-interest rates and the wait for the next paycheck may make everything go downhill. You might go through a financial reset after filing a bankruptcy and payday loans will not help. These loans, even if they seem like relief in the short term, can become a burden in the long run.
Considering Alternatives
Financial stability becomes important after filing for bankruptcy as you have to start building your credit score again. You can use strategies like getting a credit card supported by a cash deposit. Moreover, instead of getting a payday loan, start saving and spending less. You need to ensure your monthly payments are complete. On the other hand, we have Chapter 13 which involves a repayment plan over several years and allows you to keep your home or car.
Look for non-risky options. Further, find lenders offering reasonable payback terms and time. This is your time to examine your finances and make better decisions with your money.
Borrowing money and relying on paycheck loans will not contribute to a healthier financial lifestyle. Make decisions that you won’t regret in the future.
Conclusion
Filing for a Chapter 7 Bankruptcy can be difficult. You’re facing debt and are unable to pay for assets. Although payday loans are an option, they come with negative impacts. You wouldn’t want to get stuck in a financial cycle that you cannot get rid of easily.
Here’s where Beem comes in. This platform will help you get access to financial help in times of emergency. You can apply, and get up to $1,000 without credit checks, interests, and income restrictions. Try Beem today and get back on the lane to financial stability.
