We have all seen the adverts offering quick and easy money for those times when your wages are running short and an unexpected cost appears. The idea of getting money straight to your bank account with a couple of clicks makes getting a payday loan seem an appealing option. However, are there long-term implications of taking out a payday loan?
If you look on the internet there seems to be no firm yes or no answer, but it also important to consider the two parts to this question. The first part is what impact will a payday loan have on your credit score and the second question, will having a payday loan stop you from getting a mortgage.
Will having a payday loan impact my credit score?
Yes is the simple answer. Whether it will have a good impact or a bad impact will depend on you. Each time you apply for credit a search is performed and will leave a mark on your credit report, too many searches can impact on your ability to get credit. From a lenders perspective, it can appear that you are desperate for funds and experiencing financial difficulty making you a high lending risk.
If you take a Payday loan out for a one-off emergency it is unlikely according to Experian to have a detrimental impact on your credit score (http://www.experian.co.uk/consumer/questions/askjames246.html). In fact, borrowing money and paying it back on time could actually help improve your credit score as it shows that you can borrow money and repay it.
If you do not repay in line with the loan agreement then it is highly likely that this will have a negative impact on your credit score. Missed payments and late payments will cause your credit score to go down and will make lenders less inclined to lend you money in the future.
Will having a payday loan stop you from getting a mortgage?
The answer to this is not quite so simple. For some lenders, any form of short-term lending or payday loans on your credit file will mean they will decline your application regardless of how you managed the commitment. Then there are some that will give you a mortgage while there is a payday loan showing on your credit report, however, they may stipulate that it must have been repaid at least 3,6 or 12 months ago.
It would appear to be that lenders are wary of people that have previously taken out a payday loan because it potentially shows an inability to manage your money effectively. This would be especially true where there are multiple payday loans showing. If you have needed to use payday loans then it is important to have a clear reason as to why that situation has occurred. For example a large unexpected bill for your car which you need in order to work.
If you are able to justify the loan and it is a one-time occurrence and your credit score is good then it is unlikely that it will cause you a serious problem in getting a mortgage. However, you should bear in mind that it could have an impact on your application and therefore it is important to make sure you disclose your credit history fully to your mortgage adviser.