Many consumers are taking payday loans in order to be able to get some extra cash to make ends meet. However, many of these consumers are not aware of its potential consequences; and that it could actually have an effect if you applied for a mortgage.
Very few consumers are aware that taking a payday loan could affect your mortgage application. Taking these loans could have great impact on your credit history leading to mortgage providers not accepting your mortgage application.
The issue is getting worse since there are more people making mortgage applications as well as those taking payday loans. This has led to a significant increase in the number of potential homeowners having their mortgage applications either being declined or receiving a lesser amount of money as compared to what they had applied for because of taking a payday loan.
The reason for mortgage providers not approving mortgage applications for people who have taken payday loans is not clear although as far as mortgage providers are concerned, any person who has taken a payday loan lives beyond their means and such a person is a high risk borrower.
However, most people are not warned about this risk. The payday lenders are not willing to tell consumers this, and some of those even in the industry are not aware of such consequences of taking a payday loan. The current chairperson of the Financial Services Consumer Panel is of the opinion that taking payday loans is okay in certain conditions, and is quite similar to putting cost on a credit card, however consumers should be informed on the consequences and exercise caution.
What is even more surprising is that regardless of Financial Conduct Authority regulations that are set to come in full gear in the coming year, the proposal does not mention the need to warn customers about the effect that a payday loan might have on their mortgage approval chances. According to experts in the industry, this obvious omission should be rectified.