Payday Loans Explode In Popularity
In recent years, payday loans have exploded in popularity and are now available from an array of different lenders. Payday loans can provide an easy and fast way of borrowing money over a short period of time and a quick search for loans at moneysupermarket will give borrowers an idea of just how much choice they have.
Until recently, using payday loans did not have any impact on a mortgage application so long as the borrower repaid on time and in full. However, this may be changing as mortgage lender GE Money has recently started declining mortgage applications from anyone who has used a payday loan in the three months prior to their application.
Their new policy does not take into account the repayment record, so if an applicant has repaid on time they will still be turned down for a mortgage by GE Money.
Payday Loans – What Are Payday Loans?
These loans tend to be used as a way of accessing small amounts of money over a shorter period of time than a traditional unsecured loan. Loan amounts are usually between Â£100 and Â£300 and the money can be deposited into your bank account the same day. The loan is typically repaid within 30 days and taken from your current account on the day your salary is paid in.
Payday-loan providers have been criticised for targeting financially vulnerable people and charging much higher rates of interest than traditional lenders, with some payday loans having a 4000% APR.
However, payday-loan companies maintain that they are offering a valuable alternative to consumers who may not be able to access funds elsewhere.
Payday Loans – Why Has GE Money Taken This Decision?
GE Money has stated that payday-loan customers are unlikely to be considered for one of their mortgage products as they consider themselves to be a responsible lender. This suggests they do not wish to be responsible for placing additional financial pressures on the shoulders of anyone who may already be struggling.
Using payday loans could signal that an applicant is not in a financially stable position. This type of borrowing is typically viewed as a last resort by many due to the interest rates the loans carry.
So having a payday loan on your credit file could be indicative of a person struggling to make ends meet, running out of money before the end of the month or not being able to budget efficiently.
The end result is an applicant who seems to carry a higher risk than the average borrower, which in turn may lead to an increase in mortgage defaults for the lender.
At this time, no other mortgage lenders have openly stated that they reject applications solely on the basis of a previous payday loan, but financial consultants believe that having this type of lending on your credit report sends the wrong message to lenders.
With that in mind, GE Money’s policy could spread, leaving borrowers unsure of their position and whether or not there is a benefit to maintaining a good repayment record.
If your mortgage lender has turned your mortgage application down because you have used payday loans in the past then please leave a comment below