Some lenders will not give mortgages to anyone who has recently used a payday loan as they fear the borrower is often short of funds. And at other mortgage lenders it makes it harder to access loans and pushes up interest rates.
By contrast mortgage applicants can benefit if they have used credit cards and paid their debts quickly – a situation payday lenders say unfairly harms their customers.
“Payday loans are designed to smooth the peaks and troughs of a person’s finances and the vast majority repay in full, on time, so taking a payday loan should not be seen as a sign of financial woe,” said Russell Hamblin-Boon from the Consumer Finance Association, representing lenders including The Money Shop and Quick Quid.
He is lobbying the Council of Mortgage Lenders to treat payday borrowers more favourably.
The CML is consulting members. But loan decisions remain with the lenders, not the industry group.
And data firm Experian added that credit ratings are designed to reflect the chance of a loan being repaid, so it may be hard to lobby banks to change their systems.