Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk. Representative example: £400 borrowed for 30 days.
Total amount repayable is £459.36. Interest charged is £59.36, interest rate 180.5% (variable). Representative 728.9% APR.
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If you have used payday loans in the past, are a current user of them or are considering using them in the future then you may be worried about what impact that this could have on your credit rating.
Payday loans are a relatively recent occurrence on the UK financial services scene and initially came in for a lot of criticism. This was due to the fact that there were a number of payday lenders who were lending irresponsibly and giving good quality and ethical payday loan lenders a bad name. Thankfully, since 2014 payday lenders have been under much more regulation from the Financial Conduct Authority and now the UK payday loan industry is both ethical and highly regulated. Despite this, critics of payday lenders make certain claims about payday loans that aren’t entirely true, one of these being that payday loans can harm your credit rating and harm your chances in the future of getting a regular bank loan or a mortgage.
The fact is, this simply not true. Leading UK finance magazine This Is Money carried out an investigation into such claims and asked leading UK lender the Halifax whether taking out payday loans affected the chance of getting a mortgage or loan in the future:
A spokeswoman for the Halifax said:
“We do not differentiate between payday loans and other forms like personal loans, provided you have managed them properly. If you have any outstanding loans with more than three months left on them, including payday loans, when you apply for a mortgage, they will be considered in an affordability assessment and therefore factored into a decision to lend. Typically payday loans are shorter term so may not impact the decision, but if more than three months are left at time of application then it would be considered. This is alongside a standard scoring assessment.”
Where the confusion seems to be coming from is that correlation doesn’t always mean causation. Critics of payday loans point out that generally people who have used payday loans are less likely to be able to get a mortgage in the UK. What they don’t say however is that these exact same people would be just as unlikely to get a mortgage even if they hadn’t have taken out a payday loan. Payday loans are often used by people with non-standard credit histories so it’s this and not the payday loan itself that is the factor deciding whether or not a mortgage is offered. As can be seen from the quote above, lenders such as the Halifax do not differentiate between regular loans and payday loans. In fact, payday loans can actually help to improve your credit profile if they are taken out and paid back as per the agreement.
If the only reason that’s putting you off taking out a payday loans is that it could potentially hard your credit score you can rest assured that it can only have a positive impact if you repay the loan as agreed within the time limits.
