PAYDAY LOANS – BORROWER BEWARE
You’ve seen the ads on TV for Payday Loans and short term finance. They let you know how easy it is to get approved but what they don’t tell you is that it will seriously hamper your efforts to secure a home loan or car loan in the future.
Short term loans are called payday loans because they help people survive from one payday to the next. You’re approved quickly and the weight is lifted off your shoulders.
This may help but of course it also displays that you spend above your means and therefore couldn’t afford to commit to regular loan repayments.
A few months down the track you decide you want to purchase a new car or your first home. All of a sudden that weight comes crashing back down again because your application for finance is denied.
You and your partner may need a home loan to purchase property but one of you has taken out a payday loan to do some shopping one time thinking no one will find out. During the home loan application your mortgage broker has to ask your partner what the reason is for the short term credit application a few months back. That’s awkward!
The reason the banks and home finance providers are worried about payday loans is because it demonstrates bad credit conduct and it’s a mark against your character. If you can’t get by from pay day to pay day without a payday loan then how could you possibly make monthly mortgage repayments?
Last year to my complete surprise I had a client declined for a 30k car loan. They had a stable job and everything looked good to me on the surface. The explanation given to me by the finance provider was that the applicant was declined due to having taken out a loan previously with one of these short term finance providers you see advertised on TV. They said to me that my client just wasn’t the type of customer they wanted.
I believe it’s important that people are aware of the full impact and potential repercussions further down the line before they decide to take out a payday loan. You may want to ask yourself whether it’s absolutely necessary to make the purchase or can it wait…?
