Payday loans, those modern short-term loans that are designed to provide people with financial support who generally have unplanned and unexpected small expenses to pay. Most tend to range from between £50 to £1000. They are quite easy to get, but the downside of that is that they usually have an interest rate that’s a lot higher than more traditional kinds of credit. Often you will find some with an APR as high as 1,500%. If you are paid enough, you’ll be able to pay off your payday loan with your next salary.
If you are interested in trying to qualify and get a payday loan, though, there are some important things you need to think about first. Namely, how it will affect your life. That’s what we are going to look at in the following post.
Their Effect on Your Ability to Buy a Home
One thing you may be concerned with is the affect a payday loan can have on your credit score. Interestingly, although there is a lot of bad press about payday loans and scaremongering about the affect they can have.
A lot of mortgage lenders will instantly reject you if you’ve had a payday loan in the last 12 months, or if you’ve ever had one. However, there are lenders that will offer mortgages with a history of payday loans out there, but you’re probably best going through an experienced mortgage broker to make your case for a mortgage.
They Appear On Your Credit Report
Just like any form of borrowing, payday loans will be noted on your credit history report. This can mean that lenders will give applications you put forward for credit from them increased scrutiny as a result of you borrowing from a lender who gave you a payday loan. This is especially true if you have taken a few payday loans in a short period of time.
This includes mortgage companies who may be apprehensive about giving you a mortgage as a payday loan could be taken as a sign of you not having a good handle on your finances from one month to the next.
They are known to be especially strict when it comes to assessing people’s affordability, especially as payday loans could be a sign that, like we’ve noted above, you are not able to budget well.
Best Way to Ensure Your Credit Score Increases When You Have a Payday Loan
If you really want or need to take out a payday loan, you should look to follow the tips below to ensure it only has a positive effect on your finances.
- Always be sure you will be able to pay it fully back and within the set timeframe – this is crucial. It would be better if you didn’t take one out at all, if you feel you won’t be able to meet the deadline or pay it back fully.
- Avoid making more than one payday loan application at any one time
- Avoid taking out numerous payday loans