We’ve all seen the adverts for quick easy access to small loan amounts designed to tide us over for a short period until payday. Payday loans seem to be the ‘in thing’ and according to recent survey results it seems that lots of us are suing them to cover monthly bills.
The survey by Santander indicated that many of us are now borrowing from one source or another to cover the cost of household bills each month. They found that 28 per cent of people in the UK are using some form of borrowing ranging from dipping into an overdraft through to credit cards, payday loans and other alternatives.
The survey found that 2% had used a loan from a payday lender, which translates into about a million people regularly resorting to payday loans to deal with bills. This is a pretty scary stat considering the high cost of these short term loans, which can quote a typical APR in excess of 4000%.
The use of payday loans can have other side effects other than putting a dent in your wallet. Some mortgage lenders have taken a pretty stern view of payday loans and may refuse a mortgage application on the basis that there is use of payday loans.
Habitual use of payday loans could indicate a stretched credit position, which mortgage lenders don’t like particularly in today’s tough market. Credit reference agencies are now recording the use of payday loans more clearly but lenders might also pick up on their use through bank statements.
Even if the lender does not decline the application outright they may factor the loans in as a credit commitment which could limit the level of borrowing available. All in all the message is that the use of payday loans could affect your mortgage application so avoid using payday loans wherever possible if you want to make life easier on the mortgage front.