28 Dec Do Payday Loans Affect Your Chances of Getting a Mortgage?
No, a payday loan will not harm your ability to get a mortgage. For the majority of mortgage providers, a payday loan is considered to be like any other type of loan taken out.
When deciding to approve or decline your mortgage application, the provider will carry out checks beforehand. One of the things that will be assessed is how well you have previously handled credit. As a result, if you have managed to pay back the payday loan promptly and in full, you should not experience issues.
What is a payday loan?
People taking out a payday loan typically borrow between £100 and £1000 in total. The money is received upfront, with the expectation that this amount is then paid back in full by the next payday, alongside interest.
The majority of people using this kind of short-term funding are taking it out to fund a financial emergency. This could be for:
- Emergency car repairs
- Medical bills
- Household bills
Why might a payday loan be bad for a mortgage?
A small number of mortgage providers could view a payday loan on your credit file negatively. The main reason for this is due to the negative press payday loans have received, and therefore the reputation they’ve accumulated.
Payday loans have been viewed as the type of loan people who are desperate for cash take out. As a result, this can lead a mortgage lender to question whether approving this sort of person for a mortgage is a wise decision.
After all, the question that is posed is if the person can not afford to make it until the next payday, then how will it be possible for them to pay mortgage and bills every month?
However, do keep in mind that most mortgage providers are willing to overlook payday loans on file, provided that you paid them back on time.
This is because most providers understand that unexpected financial emergencies can occur, which means you end up needing to take out a loan.
When you took out the payday loan is important
Another thing to remember is when you took out the payday loan could be a crucial factor with some mortgage providers.
For example, some mortgage lenders may look at payday loans on an individual basis, using discretion based on when it was taken out.
If you took out a payday loan several years ago and paid the loan back promptly, many mortgage providers will overlook this in an application.
However, if the payday loan was taken out less than a year ago, you may find your chances of being approved for a mortgage are reduced. Mortgage providers want to ensure you will be able to keep on top of all your existing financial commitments, and this may suggest you are not quite there yet.