Can I Get a Mortgage After a Payday Loan?

Payday loans and mortgage applications aren’t particularly something that go hand in hand. While having a payday loan won’t affect your credit score negatively, it can harm your chances of securing a mortgage.

Why are payday loans an issue for mortgage lenders?

The main issue mortgage lenders have with payday loans is that they suggest an inability to manage your finances.

If you use payday loans frequently, this can appear as a red flag as it indicates that you’re struggling to manage your existing commitments. This will likely reduce your pool of mortgage lenders who are willing to lend to you.

How do payday loans affect a mortgage application?

Having a payday loan open can result in some lenders outright rejecting your application. A settled loan from five or more years ago will be less likely to result in rejection, but it’s worth noting that some highstreet lenders will not accept applications if you have a payday loan on your credit file. 

It's important to remember each lender has their own criteria that needs to be met and they can vary significantly. You will likely be classed as a higher risk borrower so it’s unlikely that you will be offered the best mortgage rates.

Do payday loans show on your credit report?

If you repay the payday loan on time and in full, it should not affect your credit score. However, if you do not pay your loan in a timely manner, this can show on your credit score and can result in lenders viewing it negatively. 

Keep in mind that any new loan applications can temporarily reduce your credit score due to the hard searches and new credit account being added to your profile. 

How long do payday loans stay on your credit report?

Payday loans will appear and stay on your credit file for 6 years. The older the loan, the less impact it will have on your chances of securing a mortgage. 

For example, if you took out a payday loan 5 years ago, repaid it in time and in full, this should not have as much impact on your mortgage application compared to a payday loan you have only just repaid. 

Will a mortgage lender check whether you have had a payday loan?

While lenders will not go out of their way to check if you have had a payday loan in the past, they are required to look at your credit file. This credit check will then reveal to the lender if you have had a payday loan in the past 6 years.

 

Can you get a mortgage after having a payday loan?

Yes, there are some mortgage lenders who will be willing to accept you as a borrower, even if you have been rejected by other lenders due to payday loans.

It will be tricky and there will be less options available to you; however, it is not impossible to get a mortgage after having a payday loan. There are specialist lenders that exist solely to help you if your situation differs from the norm.

Can I get a mortgage if I’ve had a payday loan in the last 12 months?

It’s highly unlikely that you will be able to get a mortgage with any mainstream, highstreet lenders if you’ve had a payday loan in the past 12 months, as many will automatically write off your application at the sight of a payday loan. 

However, through the use of expert mortgage brokers and specialist mortgage lenders, it is possible to get a mortgage. It is likely you will have higher interest rates and your loan amount may be capped too. 

Alternatively, you could wait a few years before you start looking for a mortgage, which should open your options up a bit more in terms of available lenders. 

Can I get a mortgage if I had a payday loan 5 years ago?

Yes, if you took out a payday loan 5 or more years ago, applying for a mortgage should be fairly straightforward. This is particularly the case if everything else, such as your credit file, is intact. 

It's still important to remember that some lenders will still decline you if you’ve ever had a payday loan. Even if you took the loan out 10 years ago, some lenders will still see this as a red flag. 

How long after having a payday loan can you apply for a mortgage?

The relevance of your payday loan depends on other circumstances around your mortgage application. 

If you are applying for a small borrowing in relation to the value of the property, then the risk is much lower. Ideally, you should wait two or so years to apply for a mortgage once all of the loan is fully paid off. 

How much can you borrow if you’ve had a payday loan?

Each lender will assess your affordability on different factors, meaning the maximum amount you can borrow will differ. 

Most lenders will cap mortgages after payday loans to around three or four times your annual income, whereas other lenders may use a completely different method of assessing how much you can borrow. 

How to get a mortgage after a payday loan

The first thing you should do when trying to apply for a mortgage after a payday loan is to speak to an expert mortgage advisor who can assist you in securing your finances. At Go2Mortgage, we have a professional team of mortgage specialists who can help you get on the property ladder, no matter how bad you think your circumstances are.

We will then help you through the following steps:

  • Reviewing your credit report and optimising it

  • Completing necessary paperwork 

  • Finding a lender who will approve you and secure you the best deal


FAQs about payday loans and mortgages

Can you remortgage after taking out a payday loan?

Remortgages are assessed the same way as a regular mortgage application, meaning your payday loan will have the same effect in terms of limiting your options.

We will look at your alternatives to try and find you a better deal with a different, better suited lender. This is usually the best way to remortgage if your current circumstances don’t meet your lenders criteria. 

Can you get a mortgage after a payday loan default?

Yes, it is possible to get a mortgage after a payday loan default, but it can be extremely difficult. The time lapsed will again influence the outcome of this. 

You will likely need to apply to a bad credit mortgage lender and have proof that your finances have recovered. 

Will a higher deposit help you get a mortgage after having a payday loan?

Most lenders who accept applicants with payday loans will usually require a minimum deposit of 15%, however, this can be higher depending on the lender. 

Can you get a payday loan off your credit report?

In most cases, it is not possible to get a payday loan removed from your credit report, and it will have to stay on for a minimum of 6 years.

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