- whether or not you pay them off!
Being tempted by a payday loan this Christmas could have unforeseen consequences- even if you pay off the value of the loan, according to research done by trade publication Mortgage Strategy.
The study, which was featured by BBC Two’s Newsnight, involved a poll of 279 brokers. Two thirds of the financiers surveyed revealed they had a client on their books who had a mortgage application rejected because they had taken out a payday loan in the past.
Their investigation also suggested that credit scores can be adversely affected by payday loans, irrelevant of whether the loan has been paid off.
Loans can be visible on your credit record for as long as six years after they have been settled.
In the run up to Christmas in particular, payday loans have become a contentious topic, as people who don’t get their paycheck until the end of the month try to fill the space under the tree in advance of the 25th.
The government intends to introduce a new law which limits the amount these companies can charge in interest as well as regulating penalty fees and other charges. The Financial Conduct Authority will help decide the terms of this cap. This new legislation will form part of the Banking Reform Bill which is likely to be in effect by 2015.
Business Secretary Vince Cable has announced that advertising guidelines will be changed so that consumers are better aware of the potential consequences of these loans.
According to regulator Ofcom, the number of television adverts for payday loans has increased by 2,235% over the last four years.
Often demonised by the press, payday loans, which have interest rates as high as 5000% per annum, have garnered a formidable reputation in recent years.
For those strapped for cash around Christmas, there are several viable alternatives to payday loans, including credit unions.