We usually don’t opt for a payday loan unless our options get limited. The credit history of a large share of Americans isn’t good enough to apply for a personal installment loan from traditional lenders. In such cases, a payday loan can suffice your requirements seamlessly. Today we are going to discuss payday loans in detail to help you take an informed decision.
Why do people trust payday loans?
Approximately 12 million Americans opt for payday loans yearly which adds up to 6% of US adults. Let us now take a look at the various reasons behind the popularity of payday loans:
- Traditional financial houses like banks and credit unions call for high standards before sanctioning a personal loan. Borrowers need to meet various criteria for getting their loan approved from these institutions. An important criterion among these is a stellar credit score. However, around 50% American population lag behind on a good credit score and this happens either due to problems in paying loans taken out previously or lack of credit history.
- It is very easy to take payday loans as you can get them either online from the comfort of your house or in-store. The fast and easy application process makes payday loans the perfect option for emergency purposes. The applicant’s bank accounts get credited by the loan amount within the next business day. There is also an option for the borrowers to cancel the money in any way they see fit.
- Most people don’t have a good credit rating and the biggest reason behind this is that many of them haven’t taken out enough loans in their life. This makes it difficult for traditional lenders to decide on their credit worthiness. A bad credit score signifies that when a traditional lender assessed your last credit score, they found some red flags. These might be anything ranging from being late on a loan payment to having a big amount of outstanding loans.
Reasons behind denied payday loans
Having your payday loan application denied might come as a big blow. But before panicking, you should analyze the problems that led to the cancellation. Sometimes, there are mistakes in the application form which can be fixed easily. At times, the information mentioned in the documents isn’t reflected in the application form as it was meant to. However, a payday loan isn’t usually denied due to poor credit. Let us now take a look at the various causes why you might be denied a payday loan
- You don’t conform to the payday lender’s criteria
Every lender has specific criteria and it is usually mentioned in the offer documents. Before applying for a loan, it is advisable to read all the information provided by the lenders. While the minimum age requirement for most lenders is 18 years, some have a higher age minimum. If age is the reason behind your payday loan getting rejected, then you should select a lender considering applicants who are either 18 years or older.
- You don’t have a consistent income
If your bank statement doesn’t show regular income, then this might pose additional questions for the lenders. Payday lenders don’t do a thorough credit check and usually rely more on your monthly income to be certain if you can return the loan on time. Your monthly income doesn’t have to be a big figure as some even accept unemployment benefits and child support as steady income. Gig workers can search for lenders who offer loans to freelancers.
- You aren’t an active checking account holder
In the case of a payday loan agreement, there will be a closure stating that the lender possesses complete right to extract the loan principal plus fees from your checking bank account if you default in repaying the loan within the discussed time. Payday lenders impose this rule to be more secure in the fact that borrowers will repay them. It becomes impossible for lenders to secure loan repayments if borrowers don’t have an active checking account. Having a checking account is required to get the loan directly deposited by the lender.
- Extremely big loan amount
If you have requested an exorbitantly big loan amount, then the lenders might reject your plea as the repayment is bound to be difficult. Chances are high that you won’t be able to repay the loan from your upcoming paycheck if you are not earning adequately every month. In such cases, the lenders might not be ready to sanction the amount you requested though they might give a green signal to a smaller loan amount.
- You have requested loans from multiple lenders
Though direct lenders don’t always run a hard credit check whenever you apply for a payday loan, they might perform a background check. There is a high chance that your loan will be denied if you request financing from multiple lenders simultaneously. It is advisable to correctly fill in the paperwork and refrain from hiding important information on your application form to reduce the chances of your loan getting rejected. Contrary to common belief, requesting a loan from multiple lenders doesn’t increase your chances of approval.
- You have a running payday loan still unpaid
Often loan applications get rejected due to the past borrowing history. There is a heightened chance that your application for a payday loan with the new lender might get rejected if you already have an existing loan agreement with another lender.
- You have previously filed for bankruptcy
It can be difficult to get your payday loan approved if you filed for bankruptcy in the preceding 7 years. Usually, serious reasons influence your ability to repay your debts and this is when a bankruptcy arises. Such a situation might be too risky for the payday lender to proceed with sanctioning your loan.
- You have a gambling tendency
Your potential direct lenders might be alarmed if you frequently interact with gambling sites. They will usually scan through your bank statements in the search of money transactions with gambling sites and if they smell anything fishy, then your payday loan won’t be approved.
- You hold a joint account with someone having bad credit
If you own a joint account with someone having bad credit, then you might not fit into the eligibility criteria for being issued a payday loan. Irrespective of having a fair credit score, your chances might dampen if you have joint finances with someone who is badly debt-ridden. It is best to assess your and the other party’s borrowing history before applying for short-term loans.
Tips for getting your payday loan approved
Following the basic rules listed below can increase your chances of getting the payday loan application approved by lenders:
- Double-check the information provided – While filling in a loan application, you need to remember that lump sum loan proceeds will be directly deposited into your bank account. Herein lies the importance of checking the accuracy of information provided in the credit applications.
- Know your credit report – Knowing what your credit file states is important to feel secure while applying for an online payday loan. You can even consider improving it in case of low credit scores. Doing this can open up more options with both traditional financial institutions as well as other payday loan alternatives. You should at least keep the file up to date if you fail to make any credit repairs.
- Pay back all existing loans timely – It is crucial to pay back outstanding installment loans timely. Lenders might deny you a payday loan if you already have an outstanding payday loan as that impacts your credibility.
Frequently asked questions :
- Why does my payday loan application keep getting denied?
There might be mistakes in the paperwork. You should go through everything in detail before filling out your payday loan application form.
- What are the requirements for getting a payday loan?
While the requirements differ from one lender to another, you will be issued a payday loan on being 21 years old. If you are less than 21, then you should apply with a lender who issues loans to borrowers aged 18 years or more.
- What is the importance of a good credit score?
While some lenders don’t levy much importance on a good credit score, having one is bound to open up more opportunities in terms of loans.