Short-term finance affects a mortgage application or retirement

Even though they have proven their worth over time, short-time financing options such as payday loans are still not the first-option for many people who are looking for finance. Often, people think wrongly that short-term loans are an option if they have a bad credit history or when they need a quick financing solution.

The appeal of short-term loans is mainly due to their short duration and low amounts. But people rarely think about the impact these loans could have on mortgage application or retirement. This is a good time as any to do that to do that.

How short-term finance affects mortgage application

Let’s start with mortgage. Today, more and more of the millennial population is turning to payday loans to finance a need or even fund their lifestyle. With many of these millennials looking set to jump on the property/mortgage bandwagon, short-term financing such as payday loans could have an impact on mortgage in the coming future.

This could either work in an applicant’s favor or make things worse for them.

It is a well-documented fact that if you pay the short-term loan off in full, then this would reflect positively on your credit history. But, there is a risk—while lenders would prefer to see a borrower pay their loan on time, getting short-term financing when they don’t need to, would put the mortgage applicant in a negative spotlight.

For example, if someone got a payday loan like the one at in the middle of the month, what would this signal to the mortgage lender? It would indicate that they cannot manage their finances effectively, which would affect them negatively when they have mortgage payments to make.

Remember, if the lender rejects a mortgage application on this basis, they aren’t trying to victimize the applicant, rather they are trying to avoid putting them in a risky position.

The moral of the story is that if you don’t need a short-term loan then don’t take one out, as this will reflect poorly on your mortgage application. However, if an applicant can make payments on time and in full, then taking short-term loans may work in their favor.

How short-term finance affects retirement

After retirement, many people make ends meet with either their savings or a fixed income. This means that they have to budget for their expenses each month and this can be a problem if bigger expenses that put a strain on finances come up.

To get out of this situation, people would generally turn to their family or friends for help or a bit of cash, which can be a cause of embarrassment. New figures show that over the last few years the number of pensioners looking for payday loans has doubled.

There are many advantages of getting payday loans including:

  • Not having to leave the comfort of your home to apply for a short-term loan
  • Applying for the loans online and getting approved for them can be faster than getting short-term loans offline
  • Your application is considered even when you have bad credit

Despite being attractive as a quick solution to a financial emergency, any benefit of short-term finance should be weighed against a financial risk it may bring.

As seen above, short-term finance such as payday loans can not only help meet an immediate need, but they can also make retirement and applying for a mortgage easy for many people, if used sensibly.