What is a payday loan?
These are loans that are short term, but usually have a high interest rate. They are designed to help with short term emergencies and are usually due to be repaid after just one month. This is why they are referred to as ‘pay day’ loans because most borrowers can then pay them off at the end of the month on their pay day. These types of loans are often provided by internet lenders, although some may be provided by doorstep lenders.
People often take these loans out for an unforeseen emergency situation such as to cover boiler repairs or a vehicle break down. They offer instant money when needed but they usually come with a very high interest rate and fees, which may be disproportionate to the amount borrowed.
Why don’t lenders like payday loans?
Many mortgage lenders don’t like payday loans as it shows that you do not live within your means, and manage your budget efficiently.
Of course, this isn’t always the case and all people have many different reasons for getting a payday loan. Sadly, a lot of lenders may not take this into account and just look at the fact you’ve taken out a payday loan.
There is a lot of misleading information about payday loans saying that it is good for your mortgage application showing that you are paying it back in time; unfortunately this information is false and can lead to your mortgage application being instantly rejected. Even if you manage to pay it back on time, with as little interest as possible, any payday loan will have an effect on your mortgage application.
Mortgage lenders want to know that the mortgage will be repaid, and unfortunately, if you have a history of payday loans, you will be seen as a bigger risk. It could be assumed that you’re bad at managing your money, and therefore will be less likely to be able to pay them the amount that you have agreed. For this reason, most high street lenders will just turn you away straight away if you have payday loans on your credit reporter your chances of approval will be.
Can I get a Mortgage after using Payday Loans?
With our specialist brokers we can help you to get a mortgage after having a payday loan. We have access to mortgage lenders that are not available on the high street, so yes you can.
How Soon After a Payday Loan Can I Get a Mortgage?
All credit events are visible on your credit report for six years, including payday loans. As a rule of thumb, the older the payday loan record on your file, the more likely lenders will be to consider your application.
How soon after a payday loan you can be accepted for a mortgage is also dependent on the loan to value (LTV) ratio. As the bigger the deposit or equity that you have, the better your chances of approval will be