Mortgage After Payday Loans

Declined For a Mortgage After Payday Loans? Find Out How We Can Help You

Mortgage After Payday Loans

Have you recently been declined for a mortgage after payday loans? We can help you!
A payday loan is a short term way of borrowing funds, often lent by internet providers such as Wonga or doorstep lenders like Provident. These types of loans often come with incredibly high interest rates and are designed to be repaid within a month, on ‘payday’.

Whilst these types of loan can provide quick financial aid in unforeseen circumstances, such as emergency home repairs or if your car was to break down, this type of instant money comes with strings attached. For example, the majority of payday loans come with high fees and interest rates – usually over 1000% – comparatively high in relation to the amounts borrowed with these types of loans. So whilst payday loans can appear an effective ‘one off’ solution to financial difficulties, if misused, costs can quickly escalate.

Concerned that your history with payday loans may impact your chances of being approved for a mortgage? Here at Amber Mortgage solutions, our specialist mortgage advisors can help to gain you access to the best deals on the market, regardless of your bad credit history.

Getting A Mortgage With Payday Loans – Busting The Myths

It is a common misconception that payday loans can improve your credit score. This couldn’t be further from the truth.
The reasoning behind this thinking, is that by taking out a payday loan and then repaying it on time, you’ll appear to be a more credit-worthy applicant to lenders. Whilst borrowing and then successfully repaying agreed amounts of money with other forms of credit, such as on your credit card, would be looked upon favourably by lenders, this is simply not the case with payday loans.

With any form of borrowed money, by law there has to be an annual percentage rate (APR) of interest that will be charged. Whilst a typical loan could come with an APR of 20%, with a payday loan you can expect an APR of 1000% (sometimes more). It is then easy to understand how borrowers can fall into a financial trap with these types of loan. As whilst they are only intended for the short term, many people go on to extend their loan beyond one month.

So, if you were to borrow £100 from a payday lender offering an APR of 1000% and then you had to extend that loan over 6 months, the total interest you would owe would be £232. This would be on top of the original loan that you owe. As you can imagine, borrowing in this way can become a slippery slope to financial worry and adverse credit problems, impacting your ability to secure a mortgage.

Payday Loans – What’s The Problem?

So why do lenders interpret payday loans on your credit history differently to other loans?
If you have a credit card that you use to make regular payments which you then pay off in full each month, then this is going to build up your credit score, as you’re demonstrating that you are capable of budgeting and consistently managing your finances.

On the other hand, when you need to take out a payday loan this suggests that you’re unable to manage your money. Regardless of whether you pay back the loan on time, lenders will see payday loans on your credit history and interpret this negatively. This is because of the nature of the loan. Whilst a payday loan may have been needed to help with an unexpected situation, it implies to lenders that you have no financial plans or savings in place. This is why payday loans on your credit record may make you appear a higher risk applicant to lenders and someone who may not be trusted to make their mortgage repayments on time.

So if you should avoid payday loans, what alternatives are available to you in times of unexpected financial difficulty?
Save money where possible – Keep track of your outgoings and try keeping to a budget that allows you to put money aside to be saved.

Cut down on credit card spending – If you have to use credit cards, only do so for purchases you know you can pay off in full each month. This will help you to build a positive credit history that lenders will look upon favourably. Aim to pay off any outstanding credit card debts.

Increase your income – It may seem obvious, but finding ways to increase your cash flow will help alleviate financial pressures and prevent the need for drastic action, such as the use of payday loans. Perhaps you can take on some freelance work or a second short term job? Or maybe it’s time to seek that promotion at work or even move on to a better paying job?

By increasing your income and keeping your outgoings low, you’ll be able to put aside some extra cash in case of a rainy day.

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