Payday Loans Damage Credit Rating

Payday Loans Damage Credit Rating.

There has been much debate in the media, financial groups and indeed even the Church of England setting its own pay day loan facility.

The argument being that Payday loans are good for you because you have quick, short term access to money or bad for you because interest rates are so high and some people get into a payday loan vicious circle of recycling loans every pay day just to stay solvent

The latest twist is that leading Welsh building society, Principality, has now decided not to offer mortgages to people that have had payday loans in the last 12 months.  They suggest that people needing short term lending facilities such as this clearly are not in a position to manage a mortgage and its huge commitment to mortgage payments for a sustained period.

Comment

We have to say, we agree with Principality.  As a financial adviser we have a duty to ensure that when we arrange a mortgage for any client that it is suitable and affordable.  If a client approaches us for a mortgage yet has used payday lending or has got into difficulty with any other line of credit, we have to find out why and establish how this can be resolved to help a client manage money better.  It would irresponsible of us, Principality or any other lender to not do so.

We suspect many lenders already look closely as prospective borrowers who have used payday loans, but have just not been as public about declining clients.