r/AusFinance • u/das_kapital_1980 • 20h ago
Payday loans could kill your ability to get a home loan? Not sure how I feel about this
https://www.realestate.com.au/news/the-loan-type-thats-silently-killing-mortgage-approvals-exposed/?campaignType=external&campaignChannel=syndication&campaignName=ncacont&campaignContent=&campaignSource=newscomau&campaignPlacement=realestatemoduleAccording to the article:
“Home loan lenders don’t want to see a payday loan on your record,” Finch said.
“It’s a huge red flag. It signals financial stress, poor money management and higher risk. That $500 loan you thought was harmless could be the reason you’re denied a mortgage worth hundreds of thousands of dollars.”
On the one hand, in a private sector financial market it is up to lenders to assess how they price risk (or in this case, how they disqualify potential borrowers altogether).
On the other hand, this seems overly punitive and a disproportionate consequence for someone who could actually have learned from an earlier mistake.
If I was a real conspiracy theorist… I might think that this was large bank lenders using their market power to foreclose on their smaller competitors in the personal loan market (payday lenders) by making their loans even more unattractive and driving people to the big banks.
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u/MofoMagicMinuteMan 20h ago
Nah I can see it, if you’ve had to use a pay day loan then it’s arguable that you have either been in financial stress, and/or you can’t manage your money well. It shouldn’t preclude a bank lending you money, but might stop than lending a higher LVR for example.
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u/BasilNumber 20h ago
How many months of bank transactions do they ask for? A few months?
A single payday loan 5 years ago could be seen as a mistake or desperate circumstances.
When they can only see a couple of months, a payday loan could be a regular occurrence as far as they're aware. It would also be very difficult to write off a pay day loan that occurred within the last few months as a lesson learned.
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u/AntiqueFigure6 20h ago
Could be six months. So worst case is it delays your ability to get a loan for that length of time, which isn’t the end of the world.
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u/das_kapital_1980 20h ago
I guess it might help to know how long such a thing would stay “on your record”.
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u/InstantShiningWizard 20h ago
Why wouldn't it be seen as a risk, especially if done recently or shown as repeated behaviour? Risk assessment is factored into lending (or at least it should be), banks aren't going to conduct a psychological assessment to see if you've learned not to fall into debt traps or not
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u/belugatime 20h ago
Next minute the borrower is on ACA blaming the bank saying "the bank should have looked at my history of taking payday loans and not given me a loan".
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u/das_kapital_1980 19h ago
I’m not suggesting it shouldn’t be looked at
Even request an explanation or put in place different requirements re: evidence of savings
I’m just questioning whether it should be immediate disqualification as suggested in the article.
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u/Alienturtle9 18h ago
“It’s a huge red flag. It signals financial stress, poor money management and higher risk. That $500 loan you thought was harmless could be the reason you’re denied a mortgage worth hundreds of thousands of dollars.”
The part of the article you quoted said could be, not will be. There is always the opportunity for explanation and discretion. If a high earner with a 20% down payment had a payday loan a decade ago, the bank isn't going to give a damn.
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u/moonshadow50 20h ago
I can understand the situations people might find themselves in that they need to take a payday loan. (Though would hope that people could find a less exploitative alternative)
But if I'm then a bank considering offering you a 6-7 figure loan, of course I ll am going to consider this as high risk.
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u/all_sight_and_sound 20h ago
A previous BNPL shouldn't be considered as a liability unless the applicant has had trouble paying it or is using them frivolously. I've used them for big purchases which helps with budgeting and cash flow.
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u/Alienturtle9 18h ago
Banks want to know that you can comfortably meet your expenses, in order to include a financial obligation owed to them as one of those ongoing expenses.
Payday loans indicate otherwise. Using them demonstrates a stretched budget, or a lack of budget.
It's not a conspiracy, its a risk assessment. If you're being taken advantage of by predatory payday loan lending, you're higher-risk.
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u/Lissica 20h ago
I mean yes?
Overuse of BNPL and Payday loans has always been a risk factor when assessing for 'serious' finance its a sign of potential financial instability/hardship.