Do Payday Loans Affect Getting a Mortgage?
Nowadays, getting payday loans is quite popular. People are struggling financially, and the pandemic hasn’t improved the situation. Unlike traditional banks, payday lenders are ready to give out a loan without checking out the applicant’s credit history. Moreover, it is possible to get a loan on the same day.
The advantages of payday loans are clear, but, unfortunately, some people think about how taking a payday loan will affect their future relationship with banks. Can mortgage lenders see a payday loan in your credit history, and can it be the reason for your application to be declined?
Read ahead for all the answers!
The Effect of Payday Loans on Your Credit Rating
Some payday lenders claim that they have no impact on your credit rating. So if you fail to cover the debt on time, there will be no evidence of it. However, you won’t be able to improve your credit rating even if you fulfill your payment timely and in full. In case you are interested in improving your credit history, you’d better talk to the manager of a particular payday loan office and see if the company can assist you with it.
How Payday Loans Affect Your Mortgage
Payday loans have no impact on your mortgage directly. But the very fact that you have used this kind of loan can be an indicator of your unstable financial situation. People choose to take out a payday loan when they can’t make ends meet, which is not a good sign for a mortgage lender.
However, you are unlikely to be rejected because of it, especially if you have paid your debt on time. Even so, be prepared that mortgage lenders may want to ask you a few additional questions and may become warier about you. Don’t worry about it, just collect all the necessary papers and prove that you can pay a certain amount of money monthly.
What to Do If You Had an Unpaid Payday Loan in the Past
First of all, don’t panic. Having an imperfect credit history is not a crime, though it is preferable to wait for at least a year since your last overdue loan. The longer this period is, the better.
If your application is declined, you can rebuild your credit history and submit a new application in the future. When giving out a mortgage, a bank pays more attention to your current income and active credit loans.
Another thing to have in mind is that payday loans are not like regular ones. They are likely to affect your credit score only if they have been passed to the collectors. Best of luck with your mortgage application!