by Mark Johnston
Pay day loans hinder mortgage applications.
According to some recent estimates more then 3 million Brits have taken out a pay day loan in the last few years.
Nearly everyone is now familiar with the common disadvantages of pay day loans, but now these loans could have a very real and detrimental impact on people’s financial futures.
Mortgage lender GE money, a sub prime lender which specialises in lending to people with tarnished credit records, says it will not lend to applicants who have taken out a pay day loan during the previous 3 months, even if they have paid it back on time and with out problems.
In a statement the lender said “as a responsible lender in a challenging market, we review a range of data to make prudent mortgage lending decisions”.
Many other mainstream lenders have denied they reject potential mortgage borrowers on the grounds they had taken out pay day loans.
An HSBC spokesperson said: “it does not make any difference to us, if you have got outstanding debt it will reduce the amount you can borrow, but that goes for any kind of borrowing”.
However, Nationwide building society said “pay day loans may have been a contributing fact in rejecting the applicant, but it would not have been the only reason for refusing a loan”.
Previously it was impossible to distinguish pay day loans from other types of loans, but recent changes to data made by credit reference agencies now shows pay day loans separately.
James Jones, from credit agency Experian, stresses a payday loan is not always a problem when applying for new credit. He added It all depends on the organisation. Some may not be keen but others may view a repaid pay day loan on time as evidence you can meet your credit commitments.”
GE money started requesting information from credit reference agencies in response to the step rise in the number of such loans taken out.
David Hollingworth, associate director of London and Country, stated “lenders use credit reference agency information as cleverly as they can to allow them to build up a risk profile of a borrower”.
Labour MP, Stella creasy, said “the news that mortgage lenders are penalising borrowers who take out the loans is further evidence of the damage pay day loans are doing toUKconsumer’s financial future”.
The problem with pay day loans is that they are mostly used by people struggling to make ends meet and therefore it is perhaps understandable that lenders then become increasingly cautious of lending to these individuals.
Russell Hamblin-Boone, spokesman fro the Finance and Leasing Association, added “GE money’s stance could be counterproductive, particularly if it was adopted by mainstream mortgage lenders”.
Many experts believe that the mere fact any lenders consider the use of pay day loans as evidence of poor creditworthiness blows apart the myth that these loans are not associated with the exploitation of vulnerable people or that they are causing more debt to households in these difficult economic times.
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