Top payday loans rejection reasons
Why they say no: we take a look at the most common reasons a lender might have to reject a payday loan application.
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There are a number of reasons that borrowers may get an application for a payday loan rejected. Loan rejections appear on a person's credit file, and may be a red flag to future credit lenders, so it's important that customers who apply for loans make it as likely as possible that their loan application will be successful. So, to help prospective applicants know what not to do (or when not to apply), we've highlighted some of the top reasons people are rejected by payday lenders below.
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Check your options before you borrow:
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Reason 1: The applicant has too many existing payday loans
Payday loans are technically known as small amount credit contracts (SACCs).When someone applies for an SACC, all lenders have a responsibility to determine whether or not they can afford the loan, so as part of the application process they will need to determine if the applicant has:
- Any other payday loans that they're currently repaying;
- Taken out more than one payday loan in the past 90 days;
- Intentions to use 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 the applicant can afford the loan they're applying for. For some lenders, if any of the above is the case, that's enough reason to reject someone's application for a loan.
Reason 2: The applicant is unemployed
If someone isn't receiving any income from ongoing employment, they will be limited in terms of lenders. However, there are lenders who will consider unemployed applicants. The applicant's eligibility will depend on the lender’s criteria, whether or not they receive Centrelink payments, what type of Centrelink payments they receive and their general financial situation. If someone is unemployed, they may be seen as too risky a candidate, and the application may be rejected.
Reason 3: Centrelink is the applicant's only source of income
If someone applies for a payday loan when they receive Centrelink, they 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 a person's income comes from Centrelink, their loan repayments (including any payments they're making to current loans) cannot exceed 20% of that person's income. If someone applies for a loan where their repayments will exceed 20% of their income, they will not be approved.
There are still a number of lenders who consider Centrelink borrowers, and some people on Centrelink payments may even qualify for a no interest loan.
Reason 4: There are dishonoured payments on the applicant's bank account
When someone applies for a payday loan online, they will need to submit their last three months of bank statements. Lenders will usually receive this by requesting the applicant's Internet banking details in the application process or by asking them to send a copy of three months of their bank statements.
If the applicant's account shows dishonoured loan payments – where a credit provider has attempted to debit a repayment from the account but there were insufficient funds – this may see a person's application rejected. Prospective applicants should also keep this in mind that overdrawn accounts are also red flags to lenders, and may warrant a rejected application.
Reason 5: The applicant's job pays them in cash
Being paid in cash can also make it difficult for someone to be approved for finance. Lenders need to be able to verify a person's income, which is usually done using an applicant's bank statements. If the applicant deposits the cash that they receive as pay into an account each pay cycle, then lenders will be able to verify it. If someone doesn't deposit it, they'll need to find a lender who can use their payslips as verification.
If a lender cannot verify a person's income, it won’t be able to approve that person for a loan.
Reason 6: The applicant has made payments to gambling sites
Lenders use a person's financial situation to determine how much of a risk they are to lend to. If lenders see evidence on an applicant's bank statements of them making payments to gambling companies like online betting websites, on a regular basis, they may be flagged as high risk and rejected.
Reason 7: The applicant didn’t meet the minimum requirements
Before someone submits an application for any payday loan, they should ensure that they meet the minimum criteria. Age, employment, income and residency requirements are usually set to establish to borrowers factors that the lender will definitely not accept. If someone doesn't meet all of these criteria, they will be rejected. While this criteria will vary from lender to lender, absolutely all lenders will require applicants to be over the age of 18. In addition, almost all lenders will require the borrower to be an Australian citizen/permanent resident and to have some form of income.
Lenders also have internal scoring systems where they allocate points to help them to determine their applicants' eligibility for their loans. If someone's score doesn’t add up, they won’t be approved. This may be a reason why it may be difficult for a lender to explain to a prospective applicant why their application was rejected – it may be because they just didn’t meet the scoring requirements, even though they apparently ticked all of the eligibility boxes.
Before submitting an application for any payday loan, customers should 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 them. They should also compare the loan with similar offerings, so they know that they're getting a competitive product that meets their needs.
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