Why they said no: We take you through the most common reasons a lender will reject your loan application.
When you’re in desperate need of funds, the only thing worse than being rejected for the loan is not knowing why. In the list below, we take you through some of the top reasons people are rejected by payday lenders.
Reason 1: You have too many existing payday loans
Payday loans are technically known as small amount credit contracts (SACCs).When you apply for a payday loan, all lenders have a responsibility to determine whether you can afford the loan, so as part of your application they will need to determine:
- If you have any other payday loans that you’re currently repaying;
- If you’ve taken out more than one payday loan in the past 90 days;
- If you are using this payday loan to repay another payday loan.
If any of the above are true, a lender will need to take further steps to see if you can afford the loan you’re applying for. For some lenders, if any of the above is the case, that's enough reason to reject you for a loan.
Reason 2: You’re unemployed
If you aren’t receiving any income from ongoing employment, you will be limited in terms of lenders. However, there are lenders who will consider unemployed applicants. Your eligibility will depend on the lender’s criteria, whether you receive Centrelink payments, what type of Centrelink payments you receive and your general financial situation. If you are unemployed you may be seen as more of a risk, and that's a reason why your application may have been rejected.
Reason 3: Centrelink is your only source of income
If you apply for a payday loan when you receive Centrelink, you will generally need supplementary income. There are other considerations to keep in mind as well. The Australian Securities and Investments Commission (ASIC) has specific guidelines for lenders for approving borrowers who receive Centrelink payments.
If 50% or more of your income comes from Centrelink, your loan repayments (including any payments you’re making to current loans) cannot exceed 20% of your income. If you apply for a loan where your repayments will exceed 20% of your income, you will not be approved.
Reason 4: There are dishonoured payments on your bank account
When you apply for a payday loan online you will need to submit your last three months of bank statements. Lenders will usually receive this by requesting your Internet banking details in the application process or by asking you to send a copy of three months of your bank statements.
If your account shows dishonoured loan payments – where a credit provider has attempted to debit a repayment from your account but there were insufficient funds – this may see your application rejected. Overdrawn accounts are also red flags to lenders, so keep this in mind.
Reason 5: You’re paid in cash
Being paid in cash can also make it difficult for you to be approved. Lenders need to be able to verify your income, which is usually done using your bank statements. If you deposit the cash you receive as pay into your account each pay cycle then lenders will be able to verify it. If you don’t deposit it, you’ll need to find a lender who can use your payslips as verification.
If a lender cannot verify your income, it won’t be able to approve you for a loan.
Reason 6: You’ve made payments to gambling sites
Lenders use your financial situation to determine how much of a risk you are to lend to. If lenders see evidence on your bank statements of you making payments to gambling companies such as online betting websites, on a regular basis, you may be flagged as high risk and rejected.
Reason 7: You didn’t meet the minimum requirements
Before you apply for any payday loan you should check you meet the minimum criteria. Age, employment, income and residency requirements are usually set to establish what borrowers the lender definitely will not accept. If you don’t meet all of these criteria, you will be rejected.
Lenders also have internal scoring systems where they allocate points to help them determine your eligibility for one of their loans. If your score doesn’t add up, you won’t be approved. This is another reason why it may be hard for a lender to tell you why you were rejected – it may be because you just didn’t meet the scoring requirements even though you apparently ticked all of the eligibility boxes.
Before you apply for any payday loan, review not only the minimum eligibility criteria but also the fees, terms and features of the loan to make sure it’s the right choice for you. Compare the loan with similar offerings so you’re getting a competitive product that meets your needs.