Mortgage with Payday Loans

As with so many credit issues, timing is key. Credit events stay on your credit file for six years, and that applies to everything, good and bad: six years’ history of credit card and loan repayments, six years for County Court Judgments (CCJs), six years for details of a debt management plan (DMP), individual voluntary arrangement (IVA) or discharged bankruptcy. A payday loan will also be visible for six years.

As to how payday loans affect credit rating, there are some lenders who will decline an application from anyone who has accessed a payday loan recently, and others who will automatically decline an application if they have been accessed at all.

However, while payday loans might reduce your options, it is generally still possible to get a mortgage.

Other considerations to take into account include the loan-to-value (LTV) ratio you are looking for from your mortgage and the outcome of the affordability assessment.

Loan-to-value (LTV)

This refers to the percentage of the price of the property you want to borrow; the balance will be put down as a deposit. Generally, only those with exemplary credit records (and that includes no record of a payday loan) will be offered a 95% mortgage. Applicants with credit issues are likely to be expected to provide a bigger deposit – expect to be asked to put down 15% or more. The mortgage may also cost you more, in terms of arrangement fees and/or interest rate.

Affordability

All mortgage applications are subject to an affordability assessment, which looks at income and outgoings in order to assess whether the applicant can afford the repayments. This is also an element affecting how much a lender may offer you.

The more adverse credit issues there are on your credit record, the trickier it can be to get a mortgage. Remember that no matter how the credit reference agencies record the details, lenders consider payday loans in the same way they do bad credit issues such as late or missed payments, or CCJs.

If for whatever reason you also defaulted on or extended the payday loan, this adds to your problems. Getting a mortgage with a mixed history of adverse credit events is tricky, but the further back in your credit history they are, the better your chances.

If you can show that while you may have had issues to deal with in the past your finances are now on a steady footing, and if you also have a good deposit to put down, things start to look better.

Regardless of your history as a property buyer – whether you are an experienced landlord expanding an existing property portfolio or a first-time buyer getting a foot on the property ladder – payday loans and bad credit can be a major stumbling block in finding the mortgage that you require. Many high street lenders will turn down applicants based on their history of adverse credit, and payday loans will only serve to worsen the problem.

We understand that this is an unfortunate situation for some individuals. However, even if you have had a payday loan in the past, please contact us regarding a bad credit mortgage. In some instances, we may still be able to find a suitable mortgage for you as all our lenders will look at your credit history as a whole, not just at one element in isolation.

If you have had payday loans in the past and feel your credit rating may have suffered because of it, please head to our credit report page to access a copy of your own credit report. Alternatively, head to our “How to improve your credit rating” guide to see what you can do to improve your financial situation.

If you already have a copy of your credit report, then please contact one of our trained advisors.

Much has been reported on in regard to pay day loans especially in respect to the rates and terms the companies who offer these facilities offer however, little is advertised or spoken of in regard to how they may affect your credit score.  Although singularly in their own right a pay day loan will rarely impact on your credit score they are very rarely seen as a positive aspect of your credit background.  Many lenders are wary of those that have used a pay day loan in the past and although it may not have impacted on your credit score, it can still be sufficient for a lender to decline your application.  From our experience we strongly urge customers not to freely enter into a pay day loan agreement without firstly considering the possible implications this may have on their future mortgage arrangements.

A payday loan is an arrangement whereby you borrow a specific amount from a lender on a short-term basis, normally 12 months or less. The term payday loan is used as the agreements are usually used to bridge the gap to a borrower’s next pay day when the loan can be repaid.

There are some short-term lenders that will allow you to take out payday loans with bad credit. It is worth seeking debt advice as well as advice on to how this would affect your credit profile before entering into any short-term borrowing, as contrary to some advice and beliefs, payday loans can have a detrimental impact on future loan or mortgage applications.

Possibly, although your options will be limited.

Your chances of getting a loan from a high street lender if you have a current payday loan are relatively low.

If everything else on your credit file is in good order and you have a sizable deposit, then a specialist lender may look upon your application more favourably – although even then you may not be approved if the payday loan is still active or has been in the last 3 months.

Our team of specialist mortgage advisors can offer free, no-obligation, initial advice to help you find the best deal for you.

Possibly. It depends on two things – the attitude of the lender, and the condition of your credit report other than the payday loan history.

While some lenders will automatically decline a mortgage application from anyone with a record of payday loan usage, others are more flexible.

If the only issue with your credit report is payday loan usage, and especially if it’s not recent, then it will have less of an impact than if you also have late and/or missed payments and the loans were within the last twelve months.

Payday loans stay on your credit file for six years, and as more time passes, the less impact they will have.

Payday loans are short-term – generally comparatively expensive – credit agreements, that have to be repaid within a month. They are intended as a one-off “quick fix” for people who are faced with an unexpected expense that won’t wait until they get paid – such as if the boiler stops working in winter, or the car breaks down and you can’t get to work without it.

They show on your credit report as, for example, “advance against income” or “revolving credit”. If the name of the payday loan lender (for example, Wonga or PaydayUK) also shows, then that in itself can be a red flag.

It’s not so much the loan itself they dislike as what lenders believe it indicates. Payday loans are seen as an indication of someone’s inability to manage their money.

If you took out one payday loan four or five years back because your car needed fixing and everything else on your credit report is exemplary, the chances are it won’t have much, if any, impact on your credit standing.

If, however, your credit history shows a series of payday loans – even if they have been paid off on time and in full – it suggests a pattern of poor money management that lenders believe may show you to be a poor credit risk.

Possibly, although probably not from a high street lender.

Payday loans are treated in a similar way as adverse credit events, such as missed payments or defaults. With a 10% or smaller deposit, and with additional red flags on your credit file, your chances are reduced.

If everything else on your credit file is in good shape, and you have a decent deposit to put down, your chances and your options begin to improve.

Contact our specialist bad credit mortgage advisors – they can help you find the best deal for you.

Taking out any kind of short-term debt on a regular basis can have an adverse effect on your credit profile. Many mortgage lenders will also have set criteria on how many payday loans you can have within the last six years.

If you default on a payday loan, the record will continue to appear on your credit file for six years. The default would then likely impact on your future borrowing applications during this period.