Mortgage After Payday Loans

The term ‘payday loan’ describes agreements that are usually used to bridge the gap in someone’s cash flow between now and the  borrower’s next pay day when the loan can be repaid. It’s an arrangement that comes with a high interest rate, where you borrow a specific amount on a short-term basis, normally 12 months or less.

Yes, there are some lenders who will allow you to take out short-term payday loans when you have other bad credit. However it is quite a risky route to take and not recommended. You should take advice from an expert on your debts and how a payday loan might affect your credit score, in case you need to apply for a mortgage at a later date. Contrary to what some people have heard, taking out a payday loan and repaying it promptly will not help your credit rating.

Yes, you can, but it’s likely that your options will be limited. Lenders view payday loans on a borrower’s record as a red flag, as using them is a sign that you cannot live within your means or manage your money very well, and a high street mortgage lender will be likely to turn you down flat.

Specialist lenders may be willing to offer you a mortgage on reasonable terms, especially if your credit history is otherwise healthy and you don’t have too many commitments – but they may still not approve your application if the payday loan is still active or was in place during the last few months. Our team of specialist advisors will be able to tell you exactly where you stand.

Maybe, but it will depend on two things: the state of your credit report aside from the payday loan events, and the attitude of the lender. Some lenders will automatically decline an applicant with a payday loan showing on their record, while others will be more flexible, looking at the whole picture.

If payday loan usage is the only problem with your credit report, especially if it was not recent, then this will have a lot less impact than if the loans were within the last year and you also had late and/or missed payments on top. A payday loan will stay on your credit file for six years, and as more time passes, the less impact they have.

Payday loans are intended to be quick, short-term loans to cover a shortfall in cash flow for a very limited period of time, usually in the case of an emergency like a boiler failure or car breakdown, until the borrower’s next pay cheque comes through. They are usually very expensive and need to be paid back, with interest, at the end of a month, although people have been known to extend them for longer periods up to twelve months. Lenders will recognise them on your credit report as ‘advance against income’ or ‘revolving credit’, and if the name of the payday loan lender (like Wonga or PaydayUK) also appears, then that in itself can ring alarm bells.

The loan itself is not the issue – it’s just using a credit facility similar to any other – but the circumstances that usually occur around payday loans are a problem for lenders. They see their use as an indicator that someone is not able to manage their money effectively. As ever, though, these things come in degrees. If you took out one payday loan a few years ago because you had no other option when your boiler needed to be replaced, and everything else on your credit report is squeaky clean, then it will not have much, if any, impact on your credit rating. But if you have needed to take out a string of payday loans – even if you paid them off on time and in full – it shows regular poor money management and lenders will perceive you as being a bad credit risk.

It should be possible, but unlikely from a high street lender. Payday loans are viewed on credit reports as adverse credit events like missed payments or defaults. If you also have other black marks on your file, and a deposit of 10% or smaller, then your chances will be further reduced. But if everything else on your credit file is healthy, and you have a reasonable sum to put down for a deposit, then you outlook is a lot better. Our specialist advisors will be able to let you know exactly what your options are.

Unfortunately yes, they do. Lenders view payday loans in the same way as they would missed payments or defaults, and taking out any kind of short-term loan on a regular basis could damage your credit rating. Some mortgage lenders now have set criteria for the amount of payday loans over the last six years they will permit to see on an applicant’s credit report.

Like any other loan, defaulting on a payday loan will be noted on your credit reports. As this will continue to show up on your credit file for the next six years, the default will likely have an impact on your future borrowing applications during this period.