Payday loans are a high cost type of loan that is often used in emergencies and costs only a few hundred dollars.
While these loans are often only used for a few weeks or months and not on a regular basis, they can have a negative connotation for someone living from paycheck to paycheck – and this can be viewed negatively by one. future mortgage provider. .
We chat with financial expert, David Beard, the founder of the comparison shopping site, LendingExpert.co.uk to find out more.
Will I be refused a mortgage because of a payday loan?
âYes, you may be turned down for a potential mortgage due to a history of payday loans on your credit report,â confirms Beard.
âHowever, that will depend on the magnitude of it. Having a single payday loan a few months or years ago that is paid off on time is not too much of a concern.
âBut the usual payday loans and the difficulty in keeping up with those payments will trigger warning signs for the lender and your application will likely be denied.
“In my experience, some mortgage and secured lenders will immediately turn down any applicant with a history of payday loans, but others will take a stand and probably treat them like any other loan, as long as it has been. paid back on time. ”
Why do people use payday loans?
Payday loans are used by around 3 million Brits per year, with an average loan size of around Â£ 300 and repaid over 4-6 weeks.
Payday loan products are often short-term and used for emergencies, whether it’s paying rent, home repairs, car repairs, plumbing issues, or just getting debt under control.
The expensive nature of these products means that they can exceed over 1000% APR, despite the fact that this is only a short-term product that is not used for a full year. Therefore, it is not advisable to use them long term and are often seen as an effective way to keep you going until your next payday from work.
What Alternatives Should You Consider Instead of Payday Loans?
âThere are a number of viable and very inexpensive alternatives to payday loans,â says Beard. “It will help you keep your potential mortgage application neat and tidy, while saving you money and avoiding debt.”
âBorrowing from family and friends is the most popular and affordable way to borrow money because it is often interest-free and penalty-free.
âOther options include borrowing from a credit union, but note that this may take a few weeks.
âYou can also consider selling household items you don’t need, such as clothes, CDs, and board games, which can be sold online or at yard sales.
âOther more affordable loan options include personal loans or secured loans, if you have collateral that you can use.
Is there anything else I can do to increase my chances of getting a mortgage?
âYes,â Beard concludes. âIf you’re going through the steps and looking to apply for a mortgage, one of the best things you can do is sharpen your credit score. ”
“You can use a free trial with any of the major credit reference agencies or request a credit report for just Â£ 2. ”
âYou can find simple ways to improve your credit score, like settling some debt or closing credit cards or store cards that you aren’t using. In fact, if you don’t have credit, it may be worth looking at a credit card to slowly increase your credit score.
âAbove all, having a stable income and job will maximize your chances of you and your spouse getting mortgage approval.
Think carefully before securing other debts against your home.
Your home can be repossessed if you don’t pay off a loan or other secured debt.
To get a free mortgage quote, you can speak with Lending Expert today on 0161 820 8099 or check your eligibility here for free.