While many different types of loans are available, the most contentious type is payday loans. Payday loans can provide a beneficial short term boost to your finances, especially when the unexpected happens and you need some quick cash. But they aren't designed to manage long term debts and the interest can make them extremely expensive.

Payday loans are also not popular among many mortgage lenders and can make getting approved for a mortgage challenging - but certainly not impossible. Even if you've had a payday loan, there will still be mortgage options available to you. In this guide, we'll look at payday loans in more detail, including how they can impact mortgage applications and how you can improve your chances of being accepted for a mortgage.

What Is a Payday Loan?

Payday loans are short term instant loans designed to help with emergencies that are typically paid back in a month, usually on your payday. They come with very high interest rates and fees which can be disproportionate to the amount of money you borrow. The average APR paid on a payday loan in the UK is 1250%, considerably higher than the average credit card interest rate of 20.7%. This is why they’re mistrusted and considered exploitative.

The FCA (Financial Conduct Authority) capped the cost of payday loans, limiting the amount of interest and default fees providers can charge. For instance, a person taking out a payday loan for 30 days will pay a maximum of £24 in charges per £100 they borrow.

Payday loans are treated the same by credit agencies as any other loans, which means they can stay on your credit file for up to 6 years. Payday loans are usually marked on credit files as either advance against income, short term credit, or revolving credit. This can make it harder to be approved when applying for a mortgage.

Can I Get a Mortgage with Payday Loans?

You can get accepted for a mortgage if you’ve had a payday loan. There are even a few mortgage lenders that accept payday loans still active on your credit file.

Nonetheless, you’ll probably find that having a payday loan on your credit record will limit your choice of lenders and mortgage products. If the payday loan is still active or you have history of using payday loans frequently, the lender may even cap the maximum LTV (loan-to-value).

When looking at your use of payday loans, lenders will consider how often you take them out and how long your last payday loan was. Furthermore, the more recent a payday loan was, the more of an impact it will have on the options available to you.

A payday loan settled 5 years ago will be less likely to cause any issues with your application. However, some high street lenders don't accept mortgage applications from potential borrowers with a payday loan showing on their credit report at all.

It's a good idea to speak to a specialist, independent mortgage broker like John Charcol, who can help you find the best mortgage for your circumstances and help you negotiate better terms with the lender.

Why Don't Mortgage Lenders Like Payday Loans?

The primary reason why payday loans are an issue for mortgage providers is that they suggest you’re unable to live within your means or manage your money effectively. Yet, a single historic payday loan paid back on time will be acceptable to many lenders if you can adequately explain what the loan was for. For instance, if you took out the loan to pay for emergency car repairs and the rest of your credit file is in good order, it will likely have minimal impact on your application and you'll still get offered the best rates from some lenders.

Using payday loans regularly (and recently), including rolling them over, will indicate that you struggle with managing your existing financial commitments which will significantly reduce the potential lenders and deals available to you – a history of using payday loans could also restrict you to lower LTV products. Lenders want to be sure that you will meet your mortgage repayments every month, but a history of payday loans will suggest make you appear a big risk.

How Will a Payday Loan Affect My Mortgage Application?

As with any loan or credit, mortgage lenders can see on your credit report that you have taken out a payday loan. Each lender has their own set of criteria for lending, which can vary significantly and impact what they’ll offer you if they’re willing to consider your application.

Overall, if your credit file shows a history of taking out payday loans, you'll be deemed a higher risk borrower by lenders and it's unlikely you'll be offered the provider's best interest rates – if they’re willing to consider you at all.

When assessing your mortgage application, lenders will consider the below.

Credit Repayment History

Taking out a payday loan will leave a mark on your credit file. Lenders can see your past payday loans. The further ago the payday loan and the better your overall credit profile, the more options you’ll have available to you.

If you only took out one payday loan and met your repayments, you'll face fewer obstacles than someone who has had many payday loans, missed some repayments or been late, had defaults, been declared bankrupt, or entered into a debt management plan.

If you're concerned about the impact your history of payday loans might have on your application, you should do whatever you can to ensure the rest of your credit report looks good. This will increase the likelihood that a lender will consider your application.


Lenders take into account the LTV on mortgage applications which compares the size of the loan you want to borrow with the size of your deposit. For instance, if you can put down a deposit of 10%, you'll require an LTV of 90%. This should be reasonably straightforward to get if you have a good credit history. If you have taken out multiple payday loans previously, or you have one that’s still active, you may find the maximum LTV offered to you is lower and you have to provide a larger deposit. Your mortgage adviser at John Charcol will be able to guide you on this and will find you the most suitable mortgage deal for your situation.

When and How You Used Payday Loans

Lenders have completely different criteria regarding payday loans. Some mortgage lenders won't consider your application if you've had any payday loans in the previous 12 months. Meanwhile, others will accept your application even if you currently have a payday loan outstanding. In most cases, the likelihood of you being approved by a high street lender increases once 2 years have passed since your payday loan was satisfied, but you may be able to find a suitable deal.

How Can I Improve My Chances of Getting My Payday Mortgage Application Improved?

If you've had a payday loan in the past, there are a couple of ways you can improve your chances of getting a mortgage approved.

Provide a Larger Deposit

Payday loans can negatively impact your credit history and score. Providing a larger deposit essentially reduces the risk taken on by the lender and gives you access to more products with potentially better rates.

Get Advice from an Independent Specialist Mortgage Broker

Specialist mortgage brokers like John Charcol can help you find the best mortgage product for your circumstances and payday loan history. As an independent broker, we have access to a broad range of products and lenders – including adverse credit lender that only work through intermediaries - and can help you secure a loan with the best possible rates for your situation.

Improve Your Credit Score

Taking out one or more payday loans can impact your credit score, especially if you've failed to repay them on time. Improving your credit score will go a long way in helping to boost your chances of being accepted for a mortgage.

Pay Off All Outstanding Debts

By clearing all your outstanding debts in full and settling defaults, you can show lenders that you’re financially responsible and know how to manage your money. It will also go a long way in helping you improve your credit score.

Avoid Taking Out a Lot of Credit in a Short Amount of Time

You shouldn’t apply for a lot of credit in succession, as this can result in a lot of hard credit checks which can damage your credit score. can signify that you’re struggling to manage your finances or live within your means.

Can I Remortgage After Having a Payday Loan?

Lenders assess remortgages in much the same way as a standard mortgage. Your payday loan history will have a very similar impact on your application, such as restricting your borrowing options and increasing your rate. It's worth speaking to a specialist mortgage broker like John Charcol, who can advise on the most suitable lender for a remortgage based on your payday loan history. You might require an adverse credit lender that assesses each mortgage application on a case-by-case basis – which are only often available through intermediaries such as John Charcol.

Why Should I Check My Credit Report if I've Had a Payday Loan?

If you've taken out one or more payday loans in the past, you must check your credit report before applying for a mortgage. Understanding your financial history and how you look to potential lenders can help you save a lot of time. After all, if you don't meet a lender's criteria for a mortgage, there's no point in applying to them. Being rejected for a mortgage can mean a delay, waste money on application fees and negatively affect your credit report, which you should do your best to avoid.

Can I Get a Payday Loan Taken Off My Credit Report?

Payday loans remain on your credit report for 6 years. If you have one on your credit report, paying it off as early as possible can help reduce the negative impact it has on your credit score over the long term.

It’s worth bearing in mind that a payday loan that was satisfied 5 years ago will have less of a negative impact on your application now than one that was satisfied in the last year.

What Can I Do if My Mortgage Application Is Rejected Because of a Payday Loan?

If the lender declines your application, it's a good idea to work with an independent specialist broker like John Charcol who can find a lender that’s more likely to accept you. We know which mortgage lenders are more likely to reject payday loan mortgage applications and can ensure you only approach a lender with criteria that aligns with your situation.

Other options include waiting a while before applying for another mortgage so that the payday loan isn’t as recent and actively improving your credit score – both of these will give you more options in the future.

Can I Get a Mortgage if I've Used Payday Loans and Have Bad Credit?

It's important to remember that the more complex your financial situation, the more challenging it will be to get a competitive mortgage. Payday loans and adverse credit history are 2 major risk factors for lenders. However, if you've had payday loans, paid them all off on time, and have managed your finances well since then, you should find some mortgage lenders that will consider your application.

If your credit report includes any of the below, you may need a larger deposit to get your mortgage application approved and have to pay higher interest rates:

If you have one or more payday loans on your credit report and any of the above, you may require an adverse credit lender. Speak to an expert adviser at John Charcol for more information on your options.

Can I Get a Mortgage if I've Defaulted on a Payday Loan?

If you've defaulted on a payday loan, you'll find that the pool of lenders willing to accept your mortgage application will shrink significantly. Missed payments can seriously harm your credit score and if you've been unable to pay a payday loan back, it signals that you have serious credit issues. In this situation, John Charcol will work with you to find a suitable adverse credit lender that reviews applications on a case-by-case basis.

It's worth noting that the further back in your credit history the payday loan default, the less of an impact it’ll have on your credit score and the more mortgage options potentially available to you.

Mortgages After Payday Loans Summary

Payday loans can impact the lenders and deals available to you but they won’t necessarily stop you from getting a mortgage.

In order to ensure you give your self the best chance of securing a competitive deal, speak to a mortgage broker like John Charcol.

We’re a whole of market mortgage broker who can match your specific circumstances with the right lender. To find out more about mortgages after payday loans, contact us at 0330 433 2927 or submit an online enquiry.

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