Getting a mortgage with payday loans
You might think paying off credit promptly helps your score. But for a mortgage with payday loans, it’s different. Lenders view them very differently.
But, we know that your credit history isn’t your whole story.
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Updated: July 21st, 2025
Can I get a mortgage with payday loans?
It’s natural to wonder how past financial choices impact your mortgage application. While repaying credit promptly generally helps your credit score, payday loans are a different story for mortgage lenders.
Here’s why applying for a mortgage with payday loans in your history can be a red flag:
Payday loans are designed as very short-term solutions with exceptionally high interest rates.
The payday loan trap: A quick look
To put the difference in perspective:
- A typical loan of £2,000 with a standard 20% APR would mean repaying £2,400 over a year.
- Payday loans, however, apply extremely high interest rates monthly, often with a representative APR of over 1,000%, and if extended, the costs can escalate dramatically and quickly lead to a cycle of debt.
Lenders often see payday loans as a sign of financial strain or a reliance on last-resort borrowing, which can make them hesitant.
We understand that sometimes these loans are a quick fix for an immediate need. However, they’re typically not a sustainable long-term solution. Our aim is to help you navigate this and explore your options with clarity and support.
Getting a mortgage with payday loans: Why lenders see a problem
The problem is down to why people take out payday loans in the first place. If you take out finance to buy a car, and pay the loan back in prompt instalments over the course of two or three years as agreed, then this demonstrates you can budget, plan and manage your expenses against your income.
However, if you take out a payday loan, it’s seen as a sign that you’ve become desperate for funds and aren’t able to manage your money. Paying it back on time as agreed might help your status in the eyes of another credit lender, but this is not the case with mortgage lenders. Home loan providers apply their own criteria to applications and your credit history, it will be a red flag to them if you’re applying for a mortgage with payday loans on your report.
The purpose of payday loans was to enable people access to money very quickly when they needed it. Borrowing money in this way might have been unavoidable or for reasons beyond your control, but a lender would view this as a sign that you had no contingency plan, and therefore were in a weak financial position. This does not inspire them with confidence to lend you money.
As a higher lending risk, you’ll be viewed as someone who may not be able to make their mortgage repayments in full or on time. This is why it will negatively impact your credit rating, and ultimately affect your application for a mortgage with payday loans on your record.
Our advice is to always avoid taking out payday loans, and to take steps to put things in place so that you never need to think about resorting to them. This will go a long way to showing mortgage lenders that you are responsible with money, and able to plan ahead for the unexpected.
To make sure that payday loans do not become part of your life, or your credit history, it’s worth looking into all the alternative options to a short-term cash boost that could harm your credit score. Especially, your chances of getting a mortgage with payday loans on your record.
Some of the ideas here are long-term, but all of them will help you engineer a situation where you’ll have no need to use a payday loan.
- Watch out for overspending – Take a look at all your outgoings and look for opportunities to save money. Maybe skip those daily ‘artisan’ coffees, pack a lunch rather than buying food all the time, cancel an unused gym membership or magazine subscription, cycle to work instead of using the car, go for ‘own brand’ options at supermarkets (they’re often made by the same people anyway)… the list goes on.
- Use credit cards less often, but more wisely – If money is short, resist the temptation to put more payments on your credit cards and add to your debts. If you’re paying off the minimum each month and interest is adding up, you are only setting up a trap for yourself in the future, especially when you hit your credit limit. The best thing to do is to try to pay off existing credit card debt (by adding a little extra on each payment if you can’t pay it all at once), so you save money on interest fees too, and then use your credit card for expenses that you know you will be able to repay in full at the end of each month. This will help to build a positive credit report, and you’ll have less financial liabilities as well.
- Find ways to increase your income – it may seem simplistic, but the most straightforward way to improve your cash flow and savings is to somehow increase your income. Could you take on some freelance work, or ask for some overtime? Perhaps you have things you can sell, or could start a side-line for specialist items on eBay? Or maybe you could find a second, part-time job, or perhaps push for a promotion or pay rise in your current work? Would a competitor (perhaps one closer to home) offer a better-paying position? There could be a few more options, but if you are able to increase your income remember not to also increase your spending accordingly. Use the extra money to pay off any debts or add to your savings – it might come in handy for a deposit.
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Can I get a mortgage after a payday loan?
The short answer is yes, you can, but other factors will come into play. Not least among these is time – how long it has been since you needed to use a payday loan will have an effect on your credit score. As mentioned before, the older the bad mark on your credit history, the less weight they will carry with any decisions by a lender, with all adverse credit events dropping off your history after six years. This is true for all kinds of bad credit events, from CCJs (County Court Judgements) to discharged bankruptcies, default notices and IVAs (Individual Voluntary Arrangements).
Different lenders will take a different attitude towards a mortgage with payday loans, with some declining an application from an individual who has used one only recently, while others will turn down anyone who has used payday loans at all.
However, it’s important to remember that, while having a payday loan on your credit report might affect your options, it’s still generally possible to get a mortgage. Lenders will take other factors into account, such as the loan-to-value (LTV) ratio you need and the result of an affordability assessment.
Lenders are always looking at their level of risk, and the more bad credit events you have on your file, the more difficult it will be to get accepted for a mortgage with payday loans on your record. Credit agencies might record details in different ways, but lenders will view payday loans in the same way they do default notices, CCJs and late or missed payments.
If you defaulted or extended the payday loan, then this will add to your issues – getting a mortgage with a combination of adverse credit events can be problematic. However, time is a factor, and the longer ago these events happened, the less weight they will carry with a lender’s decision on a mortgage, especially if you have had a healthy record since.
If you can demonstrate you have been a responsible borrower in more recent times, and your issues are in the past, you will be viewed more favourably by a lender, especially if you also have a decent deposit to put down.
How serious are payday loans for mortgages?
It can affect home buyers from all ends of the spectrum – experienced landlords with multiple properties to first-time buyers trying to start their life on the property ladder. Bad credit issues in general can make it much more difficult to get approved for a mortgage with payday loans. High street lenders are very cautious about who they lend to, and for applicants with any adverse events on their credit report, a payday loan will only make matters worse.
This is a very unfortunate situation, which you may have stumbled into through no fault of your own, or even thought that a payday loan could help your credit score. Either way, if you are looking for a mortgage with a payday loan on your record, then you need to look at options beyond the high street lenders.
If you talk to our expert team, we should be able to find the right lender with the right product to suit your needs – all the lenders we deal with make assessments based on your whole credit history, not an isolated incident.
The first thing to do is always to get a copy of your credit report to see exactly where you stand and where any issues might lie. Then you can take steps to build a healthier credit record using the tips we have posted. And you can talk also talk to an experienced mortgage advisor, who should be able to put you on the right track to get a mortgage with payday loans on your record.
Do you already have a copy of your credit report? The get in touch with our team as soon as possible.
Do payday loans increase your credit score?
You may well be aware of the high interest rates charged by payday loan companies and their stringent terms. And you may also think that taking out a payday loan could help your credit score. The unfortunate truth is it will not, and in fact can cause damage to your credit rating.
Just one small payday loan that you repaid promptly may not in itself have a big impact on your credit score, especially if it was a few years ago, but they are almost never seen as a positive sign. No matter how small the loan, or tiny the effect on your credit rating, for many lenders it is simply a matter of perception.
Many lenders are wary of applicants who have used payday loans in the past, as it implies they are not very good at managing their money, and this will cause them to decline your mortgage application. From experience, we must strongly advise clients to avoid taking out payday loans, especially if they are concerned about the impact on future mortgage applications they may need to make.
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FAQs: Getting a mortgage with payday loans
A payday loan is a short-term, high-cost loan, typically designed to be repaid on your next payday. They are often used to cover unexpected expenses or bridge a gap in finances until your regular income arrives. While quick and convenient, they come with very high interest rates Lenders will see them as a red flag if you’re applying for a mortgage with payday loans on your credit file.
The term ‘payday loan’ describes agreements that are usually used to bridge the gap in someone’s cash flow between now and the borrower’s next pay day when the loan can be repaid. It’s an arrangement that comes with a high interest rate, where you borrow a specific amount on a short-term basis, normally 12 months or less.
Yes, there are some lenders who will allow you to take out short-term payday loans when you have other bad credit. However it is quite a risky route to take and not recommended. You should take advice from an expert on your debts and how a payday loan might affect your credit score, in case you need to apply for a mortgage at a later date. Contrary to what some people have heard, repaying it promptly will not help your credit rating or if you need a mortgage with payday loans on your record, it may become more difficult.
Yes, you can, but it’s likely that your options will be limited. Lenders view payday loans on a borrower’s record as a red flag, as using them is a sign that you cannot live within your means or manage your money very well, and a high street mortgage lender will be likely to turn you down flat.
Specialist lenders may be willing to offer you a mortgage with payday loans on your record for reasonable terms, especially if your credit history is otherwise healthy and you don’t have too many commitments – but they may still not approve your application if the payday loan is still active or was in place during the last few months. Our team of specialist advisors will be able to tell you exactly where you stand.
Maybe, but it will depend on two things: the state of your credit report aside from the payday loan events, and the attitude of the lender. Some lenders will automatically decline an applicant with a payday loan showing on their record, while others will be more flexible, looking at the whole picture.
If payday loan usage is the only problem with your credit report, especially if it was not recent, then this will have a lot less impact than if the loans were within the last year and you also had late and/or missed payments on top. A payday loan will stay on your credit file for six years, and as more time passes, the less impact they have.
Payday loans are intended to be quick, short-term loans to cover a shortfall in cash flow for a very limited period of time, usually in the case of an emergency like a boiler failure or car breakdown, until the borrower’s next pay cheque comes through.
They are usually very expensive and need to be paid back, with interest, at the end of a month, although people have been known to extend them for longer periods up to twelve months.
Lenders will recognise them on your credit report as ‘advance against income’ or ‘revolving credit’, and if the name of the loan lender also appears, that itself can ring alarm bells when applying for a mortgage with payday loans.
The loan itself is not the issue – it’s just using a credit facility similar to any other – but the circumstances that usually occur around these types of loans are a problem for lenders. They see their use as an indicator that someone is not able to manage their money effectively.
As ever, though, these things come in degrees. If you took out one payday loan a few years ago because you had no other option when your boiler needed to be replaced, and everything else on your credit report is squeaky clean, then it will not have much, if any, impact on your credit rating.
But if you have needed to take out a string of this type of loan – even if you paid them off on time and in full – it shows regular poor money management and lenders will perceive you as being a bad credit risk when applying for a mortgage with payday loans on your record.
It should be possible to apply for a mortgage with payday loans on your record within the last 12 months, but unlikely from a high street lender. Payday loans are viewed on credit reports as adverse credit events like missed payments or defaults.
If you also have other black marks on your file, and a deposit of 10% or smaller, then your chances will be further reduced. But if everything else on your credit file is healthy, and you have a reasonable sum to put down for a deposit, then you outlook is a lot better.
Our specialist advisors will be able to let you know exactly what your options are when applying for a mortgage with payday loans on your record
Unfortunately yes, they do. Lenders view payday loans in the same way as they would missed payments or defaults, and taking out any kind of short-term loan on a regular basis could damage your credit rating.
Some mortgage lenders now have set criteria for the amount of payday loans over the last six years they will permit to see on an applicant’s credit report when applying for a mortgage with payday loans
Like any other loan, defaulting on a payday loan will be noted on your credit reports. As this will continue to show up on your credit file for the next six years, the default will likely have an impact on your future borrowing applications during this period, especially when applying for a mortgage with payday loans.
About the author
Phil Scott: Director
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications:
- Financial Planning Certificate: 1, 2 & 3 | Year Attained: 1992
- Certificate in Mortgage Advice and Practice (CEMAP) | Year Attained: 2001
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