MSE News: A payday loan could cost you a mortgage

Gentoo365

This is further news of the damage these companies are doing to the financial future of many.

Whilst I agree with a lot of the disrespect towards these companies the above is pretty harsh statement and the causation is all wrong.

The implication is that pay day loan companies are at fault for the change in policy of lenders.

The 'damage' to the credit record is not the fault of the pay day loan company, they are just recording a request for credit.

Lenders would be wary of any request for credit near to a mortgage application, be it a personal loan, a credit card or a pay day loan.

Pincher

Don't lend the desperate any more money.

Do they get more desperate, or just eat cake?

fatbelly

I thought this was already known. I've seen it mentioned several times on the forums.

It's up to lenders how they interpret the information on a credit file and , as others have said, payday loans tell their own story.

Apples2

It also clarifies that other ridiculous argument which repeats regularly.......

Lenders CAN tell a payday loan from a proper loan.

We could spend ages digging up old posts for some self gratification (not that type Elvis!!!!) :laugh:

RobertoMoir

chanz4 wrote: »

So Experian are now exploting by allowing them to single out those using payday loans.

Not sure what's wrong with that. Experian and the like aren't drawing conclusions, simply supplying data.

And PDL companies are lenders of last resort. I think that a mainstream lender who looks at regular PDL users as a higher risk is being perfectly reasonable.

Consumerist wrote: »

Knowing a customer's IQ could help a prospective lender no end.

Not sure about how it would work, but I've always felt that lenders should not be able to lend money to people who are not able to understand the implications of the loan agreement they're signing. While that would cause some short term pain for both 'sides', I think in the long term it would be a good thing.

rtho782

A loan is surely a loan, why should experian differentiate between a loan with a 6, 12, 24, 36, or 48 month term and a loan with a 1 month term?

Many payday loans did not report to CRAs until the last couple of years unless you defaulted on them. It was only consumer pressure as customers wanted a lender that would give them green zeros, that changed this. I can see this pushing things the other way.

A payday lender could perhaps decide to offer the same loans but record it as an ongoing credit account - similar to a creditcard or flexiloan - with a limit of whatever they will offer the customer, and an outstanding balance of what the customer currently owes. This would probably avoid this issue and thereby gain them market share.

The most annoying thing about this, is that experian only recently changed their policy in this regard and allowed lenders to differentiate between loans and payday loans. I don't really believe this is fair to do with historical data. Perhaps with new data, but I know I for one would have strongly avoided payday loans had this been the case a year ago.

[Deleted User]

rtho782 wrote: »

A loan is surely a loan, why should experian differentiate between a loan with a 6, 12, 24, 36, or 48 month term and a loan with a 1 month term?

Because they're strongly indicative of different risk profiles.

It's the same reason why mortgage lenders sometime ask to see bank statements. You could argue that spending £400 is spending £400, but ther'e a difference as to whether it's spent in Waitrose or at Ladbrokes.

rtho782

I don't agree it automatically makes someone high risk.

I have 18 PDLs showing on my credit file since 2010. The most recent was settled 24th May 2012. I shouldn't need to use them again, but this means they will be on there until 2018.

In the last six years I have not missed or been late with a single payment, or had to make only a part payment, on any PDL, Loan, or credit card.

I have 5 credit cards. All are paid on time. I clear the full balance approx 50% of the time. The rest of the time I'll carry a balance for a month or two, but I always pay substantially more than the minimum.

I have had 3 HP agreements with Black Horse since Dec 2010. Two of these have been cleared in full within the first 6 months of their terms, the latest one is now 8 months into it's 48 months, and no outstanding monies were rolled into it.

I have had a total of 5 regular loans in the last 6 years. One was paid off on schedule, one was cleared in full inside it's first 6 months, of the remaining 3, one has been part settled for about 75% of it's sum and will be gone shortly.

I have an overdraft, I don't use it constantly, I have never ever gone over it and have not had a single bank charge in 6 years.

I'm by no means perfect, I have a relatively high level of debt, about 35% of my income, but I don't believe I am a poor credit risk because I have used PDLs. In some ways I'm probably quite a good customer for a lender - I will pay back what I owe, quite possibly early, and I will pay you interest, I'm not someone that will pay in full EVERY month, or only ever use 0% deals.

In fact, as I work in Financial Services, my employer searches my file every 3 months (shows as an unrecorded enquiry) and were I to default on something I would be at significant risk of losing my job. This kind of incentivises me to pay, and in my opinion is certainly more of a positive than a PDL is a negative.

Had it been the case a couple of years ago that lenders could tell the difference between loans and PDLs, I would not have used PDLs. Now, as the goalposts have moved, I lose out for 6 years. How is that fair?

[Deleted User]

I agree it doesn't automatically make someone high risk. But it's's an indicator and needs to be reflected in lending decisions.

I would stand by the view that someone who uses payday loans is likely to be more risky than someone who doesn't. And someone who uses them every month is likely to be more risky than someone who has used them once in the last year. And so on...

Although your PDLs are on your file, the fact they are receding into the distance will improve your standing with future lenders, as opposed to someone who's still grabbing once every month.

rtho782

You are right of course, I've known some silly silly people get caught in PDL traps and roll one into another each month or have to come to payment plans. Hell, at my last job, there was someone there, let's call him John, whose constant Wonga antics were an endless source of amusement for us all.

He'd always owe them a fortune, he'd pay them about 75% of his wages each month then get another loan so he could be back on paddypower and bet on more football matches.

When Wonga sponsored that football team, we were all of the opinion that it should list him as Wonga's sponsor as well.

I guess my main annoyance here is the fact that Experian have moved the goalposts. They have changed how they report PDLs to other lenders, and I believe that if they wanted to do this they should only have been able to do it going forwards on NEW pdls rather than historic ones.