by Ben Sweiry ·
Modified on 16 October, 2023
Yes, getting a mortgage after using payday loans is possible, however, a lot of mortgage lenders are known to decline customers who have recently used payday loans, some even decline if a payday loan shows up at all in their credit history at all over the last six years. See more about how your application could be declined.
In spite of this, it is still possible to get a mortgage after using payday loans, and the lender may be able to see that you have paid them off in full within the agreed timeframe.
Key Points:
- It is still possible to secure a mortgage, even after taking out a payday loan.
- Having not reliably paid back a payday loan – recently or in the past – can worsen your credit score. Failing to pay back loans can, therefore, impact your chances of getting a mortgage.
- The average monthly mortgage payment in the US is $1,275 on a 30-year fixed mortgage.
- Damaging your credit score by recklessly taking out loans results in long term impacts. From preventing you from taking out future loans, to incurring late fees, you should be aware of potential consequences before committing to a repayment plan.
What Is A Payday Loan?
Payday loans are high interest and short term loans which are designed to last the borrower until their upcoming payday. They are typically for small amounts, whether you want to borrow $300 or up to $1000, however the amount can vary based on the lender.
Online payday loans are only supposed to be used in emergency circumstances, for example to cover the costs of unexpected medical bills or funerals. They should not be used for any unnecessary spending or taken out to help repay alternative loans.
In order to apply for a payday loan, you will need an ID, source of income and a valid bank account. After applying, you can be approved for a payday loan and have the funds deposited into your account in as little as 15 minutes, meaning they are a quick fix in an emergency.
Does Having a Loan Affect Getting a Mortgage?
It Definitely Won’t Help You Obtain A Mortgage!
It is often misconstrued that taking out payday loans and then making the repayments on time will demonstrate that you are in control of your financial situation and consequently will be capable of making your mortgage repayments, however this is not the case.
If you have taken out a payday loan and repaid it on time, this will not negatively affect your credit score, and may even slightly improve it. In spite of this, lenders may not want to provide a mortgage for applicants who they deem to rely on loans, meaning that you will have more flexibility if you do not take out payday loans.
Mortgage Lenders Will Assess Your Credit History When They Receive Your Application
Lenders always assess loan history when they receive applications for mortgages. Lenders will be looking to see whether an applicant relies on payday loans regularly to see how they handle money and making loan repayments.
Furthermore, lenders are looking for how recently an applicant has relied on a loan to support their usual source of income. If you have not taken out a loan in the last five years, it will be unlikely that this will affect your chances of getting a mortgage.
If you frequently rely on high cost loans, lenders will see that you struggle to make it month to month and consequently may reject your mortgage application. This will be because they do not trust that you will be able to make your mortgage repayments within the agreed timeframe.
Do Mortgage Lenders Like Payday Loans?
Regular payday loan use can cause issues with potential mortgage lenders, as mortgage underwriters can consider it mismanagement of finances and a potential indicator of risk, and we speak to hundreds of customers who have been declined as a result.
That’s not to say there aren’t lenders out there for you, as thankfully there are providers offering mortgages after payday loan use at competitive rates, and the specialists we work with already know which lenders will accept payday loan use.
Finding a mortgage with a history of payday loan use can therefore be a little tricky.
How Long Does A Payday Loan Stay In My Credit History?
Your credit history and credit score will show any borrowing you take or payments you miss over the last six years. The older the registration date, the less impact it will have on any new mortgage application.
As mentioned above, some of the stricter lenders will decline your application if you have ever had one, others accept use right up until the current month, if it can be explained.
The length of time to wait before you apply for a mortgage depends mostly on the Loan to value. Generally, the more deposit/equity you have, the better your chances of mortgage approval.