Generally speaking, yes, you can still get a mortgage with a history of payday loans on your credit file.
However, this depends on the mortgage lender and other factors such as how recently your payday loans were taken out, how many and whether or not they were paid off on-time.Payday loans
can be an effective way to cover any shortfalls of cash or pay for any pressing household emergencies - but they are also associated with higher risk borrowers who may rely on short-term funds to see them through the month.
With this in mind, some high street mortgage lenders and banks will stay clear of anyone who is applying for a mortgage and has a recent payday loan on their credit file - especially since the loan amount and responsibility of a mortgage is significantly higher.
Repayments with Fund Ourselves, like most payday lenders, are repaid in equal monthly instalments.
The amount you are required to pay will be presented to you in writing and this is sent to you in a loan agreement that you will electronically sign beforehand.
The purpose of equal monthly instalments means that you know exactly how much you are going to be repaying each month, with no added fees or surprises.
You simply need to have the repayment amount available in your bank account each month and this will be automatically collected by the team from Fund Ourselves.
- Some high street banks and lenders in the UK try to avoid lending money to people who have recently taken out payday loans
- It is OK to have historical payday loans if they were paid in full and were not very recent
- If you have a history of bad credit, paying off payday loans on time can help to build up your credit rating
- If denied a mortgage due to having a previous payday loan, consider using alternative mortgage providers and brokers to help you get approved
Will a mortgage lender consider me if I have taken out a payday loan?
The majority of high street banks will be cautious if you have taken out one or more payday loans in the past. This is because payday loans are often used as a more urgent need for funds and therefore it questions whether the borrower will be able to manage the larger financial obligations of having a mortgage and property.
Realistically, your bank is unlikely to decline your mortgage if you have only had one or two payday loans in the past and paid them off on-time.
However, if you habitually take out payday loans and also have a history of missed payments and debt, this will negatively impact your chances of getting approved for a mortgage.
What other factors do mortgage lenders and banks consider?Credit score
- Mortgage lenders will always run a credit check to determine your eligibility for a mortgage or home loan. This gives the lender an indication of how well you have paid other types of credit cards, car payments and personal loans
in the past - and how many you have open too. If you have a bad or poor credit score, this could make it hard for you to get a mortgage approved.Income
- Having a regular income and stable job status will boost your chances of mortgage approval. Those who are unemployed or brand new to a job may be limited in getting approved initially, since banks and mortgage providers typically look for a minimum of 3 months’ proof of income.Debt-to-income ratio
- Despite having a stable and good income, this may be overshadowed by large sums of ongoing debt including multiple loans, credit cards and other financial obligations such as school fees and the costs of supporting a number of children.
Hence, mortgage lenders will look at your debt-to-loan ratio to determine whether you can manage mortgage payments on top and how much you can borrow.LTV
- This refers to your loan-to-value (LTV) and how much you are looking to borrow versus the cost of the property. If you are looking at 70%, 80% or 90% LTV or higher, you may be required to have strong attributes elsewhere such as a good credit score, income and low debt.
Can paying off a payday loan help me get a mortgage?
In some respects, paying off a payday loan on-time can help you to get a mortgage. Certainly if you have a bad credit history, repaying a payday loan on time will make your credit score improve.
However, this should not be your only method to rebuild your credit rating nor should it be your first port of call if you are trying to demonstrate your eligibility for a mortgage.
To better your credit rating, consider using credit builder credit cards and closing any other credit cards and store cards that you do not use.
What should I do if I have been denied a mortgage due to a historic payday loan?
If you have been denied a mortgage because of a previous payday loan, you can still try to apply for a mortgage elsewhere.
Banks are notoriously strict when it comes to mortgage applications, so you can consider using alternative banks and mortgage lenders from private institutions or challenger banks.
In addition, you can consider using a mortgage broker who only charges a fee if they can successfully secure you a mortgage deal. A broker will have access to several mortgage lenders on the panel and be very proactive in trying to find you a mortgage approval.
You can also look at building up your credit score using a credit score checker from the likes of Experian or Noddle and following the step-by-step instructions to get your credit score in the best shape possible.