Payday Pain

Fancy some payday pain?

payday pain

 

It seems as though taking out a payday loan can have long term repercussions on your personal finances.

As well as having to pay eye wateringly high short term interest rates ( the highest I’ve seen is over 1750%pa) it seems as though there is now a long term sting in the tail for those desperate enough to fall for the marketing charms of the payday loan companies.

Recently released mortgage application data in the UK shows that highly paid professionals such as lawyers, company bosses and other young professionals are having mortgage applications turned down because they have in the past taken out payday loans.

Wow!

It appears as though mortgage companies are rejecting anyone who has taken out a short term payday loan in the 6 years prior to making a mortgage application. Mortgage providers view that people who are resorting to taking these loans are under pressure financially or not good at managing their financial affairs.

A recent survey by “Mortgage Strategy” magazine found that two-thirds of mortgage brokers had seen potential clients rejected by lenders because of payday loans.

So… in the eyes of a mortgage company – taking out a payday loan is now as serious a financial misdemeanor as a credit default!

I feel sorry for anyone who has fallen for the “charms” of the tv adverts offering instant easy financial relief – who knew that there would be such a sting in the financial tail ? These adverts should carry a financial health warning of the long term payday pain that these loans can bring about. Not only do borrowers get hit with the payday pain of super high interest rates, they also get hit for years to come in their reduced ability to borrow at normal rates.

I wonder if people realise the effect of a lower credit score, and the long term financial damage it can do – say for example when taking out a mortgage – a 1% increase in the mortgage rate can cost you tens of thousands over the term of the mortgage.

It just goes to show how financial illiteracy, and the non existent provision of good, solid personal finance lessons at school can affect people so deeply.

Two-thirds of pay day loan customers are under 35 according the UK loan company Wonga (the biggest provider). 31% of its customers are aged under 24!

More than 75% of people in the Wonga survey said that taking out a payday loan was “very easy” to arrange as opposed to the 11% who thought that it was easy to take out a loan from a high street bank.

I wonder how many young people have taken out one of these short term loans to buy concert tickets etc when they’ve been temporarily short of cash ? without being aware that its going to affect their long term financial health ?

Experian say that short term borrowing from non traditional lenders can have an immediate detrimental impact on a persons credit score which remains on file for 6 years.

Buyers Beware – Payday Pain

Comments

  1. Payday loans are probably the worst way to get into debt! If you do, please pay it off and try never to get into one. The interest rates are obscene (and should be illegal)!

  2. Payday loans were recently outlawed in our state via a referendum, though the same businesses are now simply offering car title loans instead.

    I’m a strong believer in citizens protecting each other via legislation. We ought to pressure legislators to stop these sorts of businesses from operating. Is the harm they do any less than those who deal drugs to our citizens? We don’t hear free market arguments too often defending the right of the humble drug pusher to sell his product. Why let these companies prey on our poor neighbors?

    • I think they should be outlawed every where. They just prey on people who are in trouble, and then create bigger trouble.
      We have credit unions in the UK to help people – but they are not widely advertised – especially amongst poorer communities where they are most needed.

  3. Payday loans scare me I must admit. I’ve never had a payday loan and reading this, I’m very glad. I didn’t know it could affect mortgage applications.

    • We all know that they’re bad news, but its only recently that people are finding out how they can affect their long term credit rating

  4. Well if there are still those who are unaware of the ill effects of payday loans, let’s hope they get to see and read this! The way they can negatively affect mortgage applications is just not fair!

  5. Payday loans are a bad idea anyway you look at them. Many people fall into the trap and are not able to get themselves out. There should be a more reasonable limit on the rate and fees charged by these guys!

  6. I agree, a cap on interest charged would definitely be a step in the right direction

  7. A great topic that needs to be discussed more. Payday loans really can be an insidious beast! As you note, “It just goes to show how financial illiteracy, and the non existent provision of good, solid personal finance lessons at school can affect people so deeply.” Education really is an important key.

  8. What an awful situation! I had no idea that the payday loans could have such far reaching negative consequences. It makes sense that that banks view this as a sign someone is less credit-worthy. I’ve heard the same thing for people who finance smaller purchases like a tv.

    It is really sad that people who are just trying to make it to the next paycheck are taking such a beating.

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