When you need a loan fast, the only thing worse than being rejected is not knowing why. However the brutal reality is that the majority of applications are rejected. In the list below, we take you through some of the top reasons people get rejected by payday lenders.
1. The lender is not confident that the loan would be affordable for you
Payday loans are categorised by the Financial Conduct Authority (FCA) as “high-cost, short-term credit”. FCA-regulated payday lenders must carry out an affordability assessment of each application to make sure that they only lend responsibly.
If the loan is just a little over what the lender considers a responsible level, then often the lender will come back offering a smaller loan, or a loan over a shorter term, or even refer the applicant to another lender. However an affordability assessment may highlight that a payday loan may simply not be affordable at that time.
2. The lender has been put-off by your credit record
Payday lenders are highly-likely to run checks with multiple credit reference agencies – like Experian, TransUnion (formerly Callcredit) or Equifax. The credit reference agencies themselves don’t make any decisions regarding loan applications, but they do provide lenders with fast, detailed information about an applicant’s borrowing history – including payment of utility bills, credit cards, council tax etc. Lenders use this information to make a quick call on how likely an applicant is to pay back a loan.
High street banks are highly unlikely to lend to those with bad credit, but payday lenders often take a different view. Payday loans are generally an easier way for those with adverse credit backgrounds to secure credit (within limits) but peer-to-peer (P2P) platforms offering short-term loans tend to be an exception to this rule, with stricter requirements around credit ratings.
It’s a good idea to check out your own credit record, so that you don’t waste time applying for loans that you won’t be considered for. While rejected applications won’t be visible on your credit report, applications for credit will. If lenders see that you’re making applications for credit, then not getting the loan, they might well put two and two together. Seeing multiple applications for credit in a short space of time on your credit report is likely to put off lenders and can damage your credit score.
Once you have visibility of your credit record, you can work on building it to healthier levels. Products such as credit builder credit cards can be a good way to do this.
3. You don’t have enough credit history
Having a limited credit history can also act against you, because lenders want to see evidence that you are responsible with debt. It could be that you’re you’re young, and haven’t previously had access to credit products, or perhaps you only recently arrived in the country. The reality is that it takes time to build a credit history.
If you’re not already, you should get yourself on the electoral roll – visit your local council’s website to register. Similarly, if you don’t have a UK current account, then opening one can be another step towards building a credit history – demonstrating that you can keep up direct debits and regular utility payments will help show that you are more likely to keep up repayments on a loan.
4. You have existing payday loans
Do you have any other payday loans that you’re currently repaying? Have you taken out another payday loan recently? Are you using this payday loan to repay another payday loan? For some lenders, if any of the above is the case, that’s reason enough to decline a loan application.
Payday loans can be a quick fix for an unexpected shortfall, but they’re expensive, and they’re not suitable for sustained or long-term borrowing. It would be irresponsible for a lender to encourage a dependency on this line of credit.
5. You don’t meet the lender’s eligibility requirements
As obvious as it sounds, check the eligibility requirements. If a lender states that its loans are available to applicants aged between 21 and 70, but you’re 19, then it’s not likely to bend the rules.
Eligibility criteria will vary from lender to lender. Age will always be a factor, but typically you’ll also see requirements around UK residency, holding a bank account, CCJs (county court judgements), being contactable, income and employment. While it’s easier to be eligible for a payday loan than for most other forms of credit, it’s vital to check the terms before applying.
It’s also important to note, however, that being eligible for any loan is no guarantee that your application will be successful, merely that it will be considered.
6. You have applied for multiple loans recently
Whenever you apply for credit, the application and the outcome of that application are likely to be visible on an individual’s credit file. To a would-be lender considering a loan application, the sight of multiple recent loan applications is likely to ring alarm bells. Having multiple recent rejections on a credit record is also highly-likely to worry a lender. Lenders may interpret this as evidence of severe financial difficulties, in which case it would be irresponsible (not to mention higher risk) for them to issue the loan.
7. You’re unemployed
While there are lenders around who will consider applications from unemployed applicants, acceptance usually hinges on a stable source of income – whether that be steady work or government benefits. This income should be sufficient to cover existing outgoings plus loan repayments. If you don’t have a regular source of income, lenders will naturally question your ability to repay a loan.
Lenders are normally quite upfront about whether or not they consider applications from individuals on benefits. If in doubt, contact them and ask.
8. Benefits are your sole source of income
Certain lenders do consider applications from individuals whose primary income is benefits, but an affordability assessment would need to show that the total income is sufficient to cover existing expenses plus the loan repayments.
9. You have made payments to gambling platforms
Most of us enjoy a flutter now and again, but for many people, gambling is more than an occasional distraction. With a ballooning number of gambling apps and websites blasting consumers with relentless advertising, it’s easier than ever to gamble anytime, anywhere.
Lenders assess your financial situation to determine how much of a risk you are to lend to. If lenders see evidence on your bank statements of multiple payments to gambling companies such as online betting sites, you may be flagged as high risk and rejected.
10. You have too much existing debt
Overdrafts can be more expensive than payday loans, so if an applicant is on or over their overdraft limit, that’s likely to be a red flag to lenders. Similarly, outstanding credit card balances, personal loans and finance agreements could all add up to a risky prospect for a lender.
As well as checking that a loan would be affordable, lenders may consider an applicant’s debt to credit limit ratio – that’s how much of the credit available to them they’re actually using.
11. There are dishonoured payments on your bank account
When you apply for a payday loan online you may need to submit your last three months of bank statements. In some cases lenders may even request that you supply your internet banking details in the application process.
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.
12. You’re paid in cash
Being paid in cash can make it difficult for you to be approved. Lenders need to be able to verify an applicant’s income, which they’d usually do through bank statements. If you don’t deposit the cash you receive into your account each pay cycle, then lenders won’t be able to verify it. Chances are that if you’re paid in cash, you also pay for a lot of things in cash, in which case lenders simply don’t have enough visibility of income and outgoings. Instead, you may need to find a lender which is willing to use your payslips as verification. If a lender couldn’t verify your income, this is a likely reason your application was rejected.
13. You have bankruptcy on your record
If you’ve ever been bankrupt or entered into an IVA (Individual Voluntary Arrangement), this will be visible on your credit record for at least six years, and will make it harder to secure credit. Many lenders will also ask during the application process if you have ever been declared bankrupt.
14. There was an error in your application
This option might seem like wishful thinking. However, lenders have to verify that you are who you say you are, that you live where you say you live, that you earn what you say you earn etc. This is both to assess risk/affordability and to protect against fraudulent applications. So if any of the details you provided were incorrect, the process could effectively be over before it began.
We compare payday/short term loans from
So what now?
Don’t despair! Instead, it might be time to do a little digging and take some positive action.
Speak to the lender. Phone, email or live chat with the lender to request an explanation. You’re entitled to one, and if the lender really is as transparent, fair and benevolent as it makes out on its site, it should help you understand the cause of your declined application. Sadly, however, this isn’t always the case, and you may just be given a stock response.
Check your credit record. Plenty of companies out there give you visibility of your credit file without charging a fee. Once you have this, you can identify if there are aspects of the report that are likely to be putting of prospective lenders. Knowledge is power!
Build a positive credit history. If it is your credit history that’s stopping you getting a loan, then you might decide to look at building/rebuilding a positive credit record. Remember, in a lender’s eyes, no credit history can be as unappealing as a less-than-perfect credit history – they’ll want to see evidence that you can be responsible with debt. Simple steps, like getting yourself on the electoral roll or setting up a current account with direct debits going out of it, can go a long way.
Review your options. Ultimately, it may be that a payday loan simply isn’t a smart idea for you at this stage. The good news is that there’s plenty of excellent free advice out there for people facing debt. Dealing with debt
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Chris Lilly is Head of publishing at finder.com. He's a specialist in personal finance, from day-to-day banking to investing to borrowing, and is passionate about helping UK consumers make informed decisions about their money. In his spare time Chris likes forcing his kids to exercise more. See full bio
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