I took 50 Wonga loans and now I can’t get a mortgage

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I first took out a loan from payday lender Wonga when I was in college to fill a funding gap between my final studies and the start of my post as a graduate intern.

This led to a ridiculous spiral of 50 loans in 48 months, between 2013 and 2017. I filed an affordability complaint and Wonga offered me full repayment of a few loans totaling £ 4,000 and the removal of my Credit Report.

I rejected the offer because I thought it did not go far enough and took the matter to the Financial Ombudsman Service.

As we all know, Wonga went into liquidation and I more or less said goodbye to any hope of full interest repayment.

Wonga, now defunct, was notoriously known to have charged interest rates above 5,000% before the town watchdog introduced measures to curb the practice.

I am happy to report that I have settled my finances, but I cannot get a mortgage from the traditional banks I have contacted due to the loans on my credit report.

FOS has no comments and I just received a generic email from Wonga but understand that the directors are responsible for the finances of a company in liquidation.

Can I get Wonga to honor her original agreement and can I finally get a mortgage if I do?

I just want to sort it out and put it all on a serious learning curve. Sue, by e-mail

Myron Jobson of This is Money says: Your case is a perfect illustration of the dangers of taking out a payday loan to fill your financial gap and finding yourself trapped in a cycle of debt.

After further researching you told me that you had taken out loans totaling £ 40,000 and paid interest amounting to £ 12,000. So you spent £ 52,000 on refunds – a staggering amount.

Payday loan companies are notorious for charging high interest rates. Wonga, now defunct, was notoriously known to have taken interest rates above 5,000% before the town watchdog introduced measures to curb the practice.

You should be commended for getting your finances in order, but unfortunately your past actions have had a telling effect on your ability to secure a mortgage to purchase a property.

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In all fairness, you might have a hard time getting Wonga to honor the deal he offered you because you turned it down and the company has since plunged into liquidation.

An FOS spokesperson told This is Money that it would no longer be able to deal with complaints about Wonga, or work on new cases now that the administrator has been appointed.

If you still want to continue your action against the company, you will need to contact the company administrator, Grant Thornton, but resolving customer complaints is unlikely to be high on the priority list for administrators.

However, not everything is pessimistic, as you may still be able to get a mortgage.

Usually, your credit score won’t be damaged by a payday loan – as long as you pay it off in full and on time, according to the ratings agency Experian.

But lenders, credit reference agencies, and other companies will calculate your score using their own methods and criteria. So a payday loan can affect your score differently in different organizations.

Simply put, some lenders may approve your request while others may decline. In the end, the decision often comes down to credit rating.

You can argue that the fact that you’ve never defaulted on a loan demonstrates your ability to honor debt agreements without missing a payment.

But not all lenders see it that way. We asked a mortgage to explain why.

David Hollingworth of London & Country Mortgage Broker responds: The use of payday loans may be viewed negatively by lenders as it can be seen as a sign that affordability is limited and challenges sustainability.

This is especially true when the use of payday loans has become habitual and mortgage lenders may think it is a sign of distress in the borrower’s financial situation.

David Hollingworths says payday loan use can be frowned upon by lenders

David Hollingworths says payday loan use can be frowned upon by lenders

While some lenders will be quite clear that they do not accept the use of payday loans, most will treat each case on its merits, but the persistent use of short-term financing may very well negatively affect a business. request.

This can be the case when all payments have been made on time, but it will also be true if payments have been missed or defaults incurred.

It appears that the use of these loans is historical in nature and establishing a clear record of loan use should help improve the options offered.

So it also makes sense to make sure that there are no other credit factors or defaults that could affect the credit rating.

Credit reports are readily available to clients of major credit reference agencies at little or no charge and provide the ability to see what lenders are looking at and identify any other issues.

Myron Jobson adds: People whose credit history is considered poor by a particular lender may be turned down or only have access to the most expensive mortgage products.

But the adage “time is a good” healer can apply to your credit score.

Your credit history goes back six years – a period agreed upon between the industry and regulators – so some of your past loans would have already slipped on your credit report.

Lenders are likely to view your application more favorably as the period since your last Wonga loan widens, as it shows that you are no longer dependent on this type of loan.

The more you can show that your finances are back on track, the better your options are.

It should be emphasized again that there are other factors that may have tarnished your credit score and therefore your ability to secure a mortgage.

But there are a few basic checks you can do to improve your grade. We have described them in the box below.

Steps to Improve Your Credit Score

  • Make sure all your debts are registered with your correct name and current address
  • Make sure there are no other errors in your file, such as debts or other people’s payments
  • Register on the electoral roll at your current address
  • Don’t rush credit too many times – and that includes things like cell phone contracts. Lenders translate this into desperation. Space applications
  • Apply for credit that you are likely to get. Also, ask lenders first to only do a “quote search” – asking for a rate first – rather than a “credit search”
  • Show lenders that you are a responsible borrower by borrowing and repaying. This can mean taking out a credit card with a very high interest rate. Spend only small amounts, then continue to pay off the balance with no interest charges. You must do this for at least six months
  • Do everything in your power to maintain all agreed refunds such as setting up direct debits – and request smaller refunds if you find refunds impossible
  • Close any credit agreements that you no longer use. Joint funding done with someone with a bad grade will affect your grade. If you separate, write and notify the debt agencies.

To learn more, read our guide How to improve and protect your credit rating.

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