Pay Day Loans

Ben1001

So, I have a friend who is planning to apply for a mortgage soon but he seems to be quite keen to get out payday loans. I have no idea about his financial situation but I feel if he keeps on doing this, it will reflect badly on his application.

Are Payday Loans enough to stop a mortgage application in its tracks? seems a bit naive to be taking out a high interest loan when you're trying to save. what should I tell him?

[Deleted User]

Tell him to either stop taking PDLs or forget the mortgage.

Anyone who needs to pay several hundred percent APR doesn't have the funds to buy a house.

And if they do have the funds but are taking them out anyway, then they don't good enough financial judgement to buy a house.

ACG

Pay day loans can stop a mortgage in its tracks.

We have a spreadsheet we use for criteria, here are some examples of how lenders view PDLs - each row is a different lenders view.

Payday loans
None in 12 months
None in 6 months
No
None in 24 months
Check - Not usually accepted
None in 12 months
Underwriters discretion


There is only one where we have "Acceptable". If they have been taking them out to boost their credit score and we can evidence there was no need for them, then they may have options but as you can see from the list above, most lenders have a cut and dry rule of none in the last x number of months.

csgohan4

You can only advise your friend, up to them if they want to take that advice, but if your taking out PDL, you can't afford a house

ScottishSaver14

Good advice from previous posters. The way I've heard it before is that since payday loans are, essentially, the worst possible way to take out a loan (relatively low value = bad money management, extreme interest rates) , that they are associated with not being able to be loaned money by traditional means (aka. the banks) .

If a bank was not willing to lend the individual money, and they turned to a payday lender, red flags for lending a substantial amount such as a mortgage loan are dramatically increased as a general rule.

If the PDL was for something small or to 'get by' that would not be worth applying for a bank loan for, that's another red flag to lenders RE: money management as another poster said.

Just bad news all round really, but as someone said all you can do is let your friend know the information.

ACG

I did a mortgage once for a bloke in 2013(ish) who was on £100k a year, no debt and plenty of money in the bank.

He took out 15 PDLs in 4 months and paid them back 3-4 days after taking them out - he had heard ti boosted his score. As he had some defaults, his options were limited at the time and by taking out the PDLs he reduced his options to 1 lender who charged sky high rates.

The market has opened up a lot since then and he would have more options now, but it just shows that not everyone who takes out PDLs does it through necessity.

[Deleted User]

I wouldn't worry unless you know this 'friend's income'?

"Payday loans" were talked about on this morning; Monday before last, more for the reclaiming (while doesn't sit well with me) and I'm sure I recall them talking about the effect on the credit file. Perhaps you could get them to watch it on catch up.

Don't take to much notice of the finance phone in they had during that episode - there was a caller trying to tell Martin they had taken out a 5 year one thousand pound payday loan - quite funny. As it seems a lot of people just are confused by the term of a payday loan nowadays, there was another programme recently where someone said they had a payday loan and it turned out it was one of those home credit loans. :o sorry it just amused me.

I'm 2 years on from apparent payday loan free, I'm not sure it is anything to be celebrated I would be a low earner and with no stability, so can only ever attract high cost/high interest credit quite understandably. I also have just under £900 saved in nearly 7 years something that was thankfully never anything easy to stop... I totally understand the group I fall into...

I took out my first payday loan in July 2009. I would now heed the warnings that the payday loan sites continue to display. Does that not do it in seriousness to your friend. There is more to it.