A payday loan could cost you a mortgage

Specialist lender GE Money, which only sells via brokers, said this week it will not approve home loan applications from borrowers who had taken out payday loans in the previous three months, or twice in the past year.

Those who take out a payday loan could be seen by lenders as more likely to miss payments, given such loans are usually taken by those who are struggling. This is not a universal view, though.

Potential lenders view your credit report, which contains data on your past repayments and outstanding debts, to make a guess about whether you're likely to repay any new loans.

Labour MP Stella Creasy, who has campaigned for a cap on the cost of a payday loan, said to The Times newspaper: "This is further news of the damage these companies are doing to the financial future of many.

"That other lenders consider use of them as evidence of poor creditworthiness serves to blow apart the myth these loans are not associated with exploitation of vulnerable people or causing debt to households in these difficult economic times."

James Jones, from credit agency Experian, stresses a payday loan is not always a problem when applying for new credit.

He explains: "It all depends on the organisation. Some may not be keen but others may view a repaid payday loan on time as evidence you can meet your credit commitments."

Last year, Experian began allowing lenders to view the type of loan customers have taken out so prospective lenders can see whether it is a standard loan or a payday loan.

However, not all lenders have signed up to the service.