Question regarding pay day loans and my credit file?

Vidar

I like many people have fallen into the trap of pay day loans, fortunately I was able to break this cycle after 4 small loans with the help of a good friend. While it did cause me to borrow repeatedly from them albeit short lived, I wasn't charged massive amounts of interest and was able to pay back the loans on time.

It's only been recently after reading this site that I discovered an article explaining that having had pay day loans in the past can cause potential mortgage lenders to reject you instantly as it is taken as evidence of bad money management skills etc. This is not something that is advertised, that taking a loan from these people can make it extremely difficult to obtain things like a mortgage.

On this point, is it possible to have the footprint of those loans removed from my credit file for not only contributing to my financial hardship at the time but for potentially preventing me from getting a mortgage of which there was no warning?

[Deleted User]

No. It's not a secret that most lenders will view PDLs in a negative light. After all, it shows you have no disposable income to weather a storm.

Chappaz

I've always thought that pay day loans were pretty pointless considering that credit cards are available.

Take Wonga. They allow you to borrow for up to 35 days with an APR of around 1500%.

But with a credit card, if you spend the money you need on it the day after your most recent statement, you have an entire month to clear the balance in full, and if you do, you don't spend a penny in interest.

Even if you need a little more time, the APR on a credit card would rarely be above 30%, so if you spent £400 on the card (the max of most pay day loans) and took two months to repay, the interest would be around £15. Compare that to most pay day loans where taking just a month to pay it back charges over £100 on interest for the same amount.

And APRs like that are usually reserved for cards focused on people with bad credit. They can be applied for even with defaults and CCJs on the file.

Maybe I'm missing something here, but why on earth do people use loans like this? Most CCs essentially give you 30 day interest-free loans.

PixelPound

Time is the healer, as your credit file reflects the last 6 years, you just need to improve money management going forward. You've gone from PDL to short term loans from a friend, but since you eventually want a mortgage you'll need to go from a low/no disposable income to one that allows you to start saving your deposit. Don't worry about trying to remove the history, it reflects the truth of the time, but demonstrate how you have changed going forward. By the time you have both built savings for your deposit/fees/etc you will also be able to show how your money management skills have improved.

PixelPound

Chappaz wrote: »

I've always thought that pay day loans were pretty pointless considering that credit cards are available.

Take Wonga. They allow you to borrow for up to 35 days with an APR of around 1500%.

But with a credit card, if you spend the money you need on it the day after your most recent statement, you have an entire month to clear the balance in full, and if you do, you don't spend a penny in interest.

Even if you need a little more time, the APR on a credit card would rarely be above 30%, so if you spent £400 on the card (the max of most pay day loans) and took two months to repay, the interest would be around £15. Compare that to most pay day loans where taking just a month to pay it back charges over £100 on interest for the same amount.

And APRs like that are usually reserved for cards focused on people with bad credit. They can be applied for even with defaults and CCJs on the file.

Maybe I'm missing something here, but why on earth do people use loans like this? Most CCs essentially give you 30 day interest-free loans.

Because usually of impatience or unaware of the options. For many the appeal is they can have the money now rather than wait for having to apply for a credit card and await for it to arrive in the post. The PDL are set up well to apply to the right clientele as they often have calculators on so you put how much you want, for how long, and what the interest will cost. They need £150 for 15 days as that's when they get paid, the site says it will cost £18 and its acceptable to them. They don't look at APR's or wanting a credit card that they may get rejected for, have to wait for it to arrive, or be tempted to max out and only pay the minimum back.

StopIt

Chappaz wrote: »

I've always thought that pay day loans were pretty pointless considering that credit cards are available.

Take Wonga. They allow you to borrow for up to 35 days with an APR of around 1500%.

But with a credit card, if you spend the money you need on it the day after your most recent statement, you have an entire month to clear the balance in full, and if you do, you don't spend a penny in interest.

Even if you need a little more time, the APR on a credit card would rarely be above 30%, so if you spent £400 on the card (the max of most pay day loans) and took two months to repay, the interest would be around £15. Compare that to most pay day loans where taking just a month to pay it back charges over £100 on interest for the same amount.

And APRs like that are usually reserved for cards focused on people with bad credit. They can be applied for even with defaults and CCJs on the file.

Maybe I'm missing something here, but why on earth do people use loans like this? Most CCs essentially give you 30 day interest-free loans.

Because despite the advertisements, that isn't what these crooks aim for.


If anyone took out a payday loan because they're short for the next week, they really should've just used a credit card, but that's not a huge problem. The problem is that these guys know that it's highly likely, at the end of the month that they'll be short again so come back for more.


Of course, a Credit Card is STILL cheaper than doing this but normally people turn to PDLs once they are out of these options also. These companies just fulfil the role of being the end of a debt spiral, and charge mercilessly for the "service" they provide. These guys made a market for themselves by convincing the Govt that it was either them or the black market. I'm not sure these guys were much of an improvement.


As for them trashing your credit score? Short Term loans are a massive flag saying "This person is terrible with money", it may not always be fair but frankly as a financial instrument they're either used by the desperate, or ignorant and both do not reflect well to a mortgage broker.

Chappaz

nic_c wrote: »

Because usually of impatience or unaware of the options. For many the appeal is they can have the money now rather than wait for having to apply for a credit card and await for it to arrive in the post. The PDL are set up well to apply to the right clientele as they often have calculators on so you put how much you want, for how long, and what the interest will cost. They need £150 for 15 days as that's when they get paid, the site says it will cost £18 and its acceptable to them. They don't look at APR's or wanting a credit card that they may get rejected for, have to wait for it to arrive, or be tempted to max out and only pay the minimum back.

Being unaware of the options is probably the main reason.

People need to be responsible though and think ahead. I think it's in the best interests of anyone on a low income to at least get themselves a credit builder card with a small limit to have as a back-up option instead of waiting until they find themselves in difficulty.

That way, they'd just never need to use PDLs.

stuart30

Chappaz wrote: »

I've always thought that pay day loans were pretty pointless considering that credit cards are available.

Take Wonga. They allow you to borrow for up to 35 days with an APR of around 1500%.

But with a credit card, if you spend the money you need on it the day after your most recent statement, you have an entire month to clear the balance in full, and if you do, you don't spend a penny in interest.

Even if you need a little more time, the APR on a credit card would rarely be above 30%, so if you spent £400 on the card (the max of most pay day loans) and took two months to repay, the interest would be around £15. Compare that to most pay day loans where taking just a month to pay it back charges over £100 on interest for the same amount.

And APRs like that are usually reserved for cards focused on people with bad credit. They can be applied for even with defaults and CCJs on the file.

Maybe I'm missing something here, but why on earth do people use loans like this? Most CCs essentially give you 30 day interest-free loans.

It was easy to get a Wonga loan...it was impossible to get a Credit card.

Seems (in my case) its now the complete opposite.

Vidar

At the time my credit was so bad I had been rejected by several credit builder cards already and desperately required the funds so that I could pay my rent.

Up until I read the article on money saving expert, nowhere had I ever seen any evidence that said that by taking a payday loan you would be damaging your chances of obtaining credit elsewhere, particularly mortgages even if you pay the loan off in full without any late payment charges.

As for the small loan, about £150, I received off a friend that was a one off to get me off the payday loans and was paid back weekly. I've not found myself in a position where I've needed to borrow money since and actually have a half decent job now that while doesn't leave me exactly comfortable at the end of each pay day does keep me fed, watered and sheltered.

The fact is in the next 2 years I should be in a position to buy my first home financially, but don't feel that I should be unduly punished for using something that wasn't fully explained and that I believed would be a help rather than a hinderence.

Ben8282

Chappaz wrote: »

I've always thought that pay day loans were pretty pointless considering that credit cards are available.

Take Wonga. They allow you to borrow for up to 35 days with an APR of around 1500%.

But with a credit card, if you spend the money you need on it the day after your most recent statement, you have an entire month to clear the balance in full, and if you do, you don't spend a penny in interest.

Even if you need a little more time, the APR on a credit card would rarely be above 30%, so if you spent £400 on the card (the max of most pay day loans) and took two months to repay, the interest would be around £15. Compare that to most pay day loans where taking just a month to pay it back charges over £100 on interest for the same amount.

And APRs like that are usually reserved for cards focused on people with bad credit. They can be applied for even with defaults and CCJs on the file.

Maybe I'm missing something here, but why on earth do people use loans like this? Most CCs essentially give you 30 day interest-free loans.

Yes. The point that you are missing is that the people who take out these loans either can't get credit cards or are so heavily in debt that their credit cards are full and are therefore forced, rightly or wrongly, into this form of borrowing.