Payday loans: the silent killer of mortgage applications?

By Natasha Culzac

Just one payday loan on your credit report could scupper your chances of getting a mortgage, say some brokers. Read why

This article can be summed up in one sentence: don’t get out a payday loan if you plan on getting a mortgage. The End.

There really is no messing about – even just one payday loan on your credit history could scupper your chances of being approved a mortgage and bear in mind that your credit report goes back SIX YEARS. If you’ve previously got one out there is still hope (read on), but if you think you might take a leap onto the property ladder in a few years time, do yourself a favour and avoid payday loans at all costs.


Because payday loans are a black hole of financial despair, that’s why. They’re associated with financial instability and desperation, and a mortgage lender will be able to see you’ve taken one out. It’s not that payday loans negatively impact your credit score, just that they’re recorded on your file and any future lender can request to see this information before deciding whether to approve you the credit. It won’t matter if your credit score is good – a payday loan will suggest you’re financially volatile and a cash-poor applicant.

Says who?

Says the experts, that’s who. We asked a range of people, from mortgage brokers to banks and credit unions. They did actually differ in their responses, which isn’t surprising because not everyone assesses risk in the same way. From moderate warnings to extreme doomsayings, let’s list them below.

Mortgage broker start-up Habito used stern words when describing the effect that a payday loan has on an application. They said it is treated like an adverse credit event, such as a CCJ, and that “it doesn't matter if you now have a well paid job, a cool car, a nice dog and a millionaire boyfriend” - you simply won’t get that mortgage. They said they started Habito to counteract a culture in which mortgages are “long, boring and designed to confuse you into submission” - but that’s a whole new article!

Another broker, John Charcol, instead said that brokers might be able to get you a good deal because they’ll ask you why you got out that payday loan and then relay that to underwriters. They said that if you have a good reason, you might be okay. However, they will want to know that you’re living within your means. They did also warn that the smaller deposit you have, the more a payday loan might affect you.

Cor, it’s bleak isn’t it?

On the more positive end of the spectrum, ScotWest Credit Union says it takes a long, hard look at its clients’ finances before making a decision and that a payday loan wouldn’t turn them off. Indeed, not-for-profit credit unions were traditionally for the hard up, but are becoming increasingly attractive to cash-rich savers looking for a more ethical way of banking. Not all credit unions offer mortgages, however, and to become a credit union member you must fit their eligibility criteria which is often based on where you live.

Similarly, RBS said that you won’t automatically be declined if you’d taken out a payday loan. However, it will be picked up by the credit check and be taken into consideration. 

If you need extra cash, there are more options than just a personal loan, and they can be far cheaper too - click here to find out more.

Top Takeaway

Don’t get a payday loan. If you got one out five years ago and now you’re applying for a mortgage, you’ll probably be okay, but you may have to shop around and you may not get the best high street rates.


By Natasha Culzac

Thanks to a journalistic career history and a childhood at Sylvia Young Theatre School, Natasha has her fingers in a few professional pies, doing her best impression of a model and actor as well as personal finance writer. Outside of work she compulsively watches BBC period dramas and constantly lies to herself that this year will be the year she learns French, once and for all.

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