According to CareerBuilder.com, an astonishing 78% of workers in the U.S. live paycheck to paycheck. If you’re among that group and haven’t yet had a chance to build up an emergency savings fund, you may find yourself in need of quick cash the next time your car breaks down or a family member has an unexpected medical crisis.
You might feel pressured to turn to a payday loan to get you through the crisis. But although payday loans are easier to qualify for than personal loans, it isn’t a guarantee that you’ll be approved for one.
10 Reasons a Payday Lender Might Decline an Application
If you’ve ever been denied a payday loan, you’re probably wondering why. Here is a list of the most common reasons a lender may reject your payday loan application.
1. You Don’t Meet the Application Requirements
Every lender has a set of minimum requirements each applicant must meet. Typically the lender will only accept applications from individuals who are 18 years of age or older who are also United States citizens. Sometimes lenders have a higher age requirement of 21.
2. You Can’t Prove Your Income
In order to be approved for a payday loan, you must be employed and have a paycheck. The lender isn’t going to take your word for it either, so you’ll need to produce a few paystubs or a bank statement showing direct deposits made from your place of employment as proof. Some lenders may be willing to accept Social Security as income; however, a great number of them will reject those who are self-employed or working as independent contractors, as well as any applicants who are employed by a temporary employment agency.
3. You Don’t Make Enough Money
Even if you have a job and can prove your income, it doesn’t mean you make enough to qualify for the payday loan. Some lenders require applicants to bring home at least $800 a month. Sometimes welfare and unemployment income are considered, as long as there is also additional income that puts you over the lender’s minimum income requirements. It’s a good idea to make sure you meet the lender’s criteria before you apply.
4. You Don’t Have a Checking Account
Payday loan lenders often require borrowers to leave a post-dated check with them or fill out an ACH withdrawal for repayment on the loan due date. If you don’t have a checking account, you won’t be able to do this and your application will be denied.
5. You Have Other Payday Loans or Paycheck Advances
If you have any outstanding payday loans or paycheck advances, a lender will be leery about granting your application. This is true whether the loans or advances are current or past due, as another payday loan would only further increase your debt.
6. You Have Blemishes on Your Accounts
Should a payday loan lender notice a series of overdrafts on your bank statement, he or she may choose not to grant your application. The same is true if a credit check is performed and a bankruptcy shows up on your report. These blemishes indicate that you are more of a risk and may not be able to pay back the loan.
7. Your Credit History is Poor
While not all payday loan lenders run a credit report, some do. If you have bad credit or your debt-to-income ratio is too high, the lender may deny your application.
8. You Don’t Meet the Lender’s Additional Requirements
Some lenders have a few general requirements for applicants, while others have a much longer list. For example, there are payday loan lenders that ask their borrowers to have access to a fax machine and provide a working phone number. They may also request proof of residency. While your application may be denied with this lender, it may be approved by another with less strict qualifications.
9. You Make Payments to Gambling Sites
If a payday loan lender scrutinizes your bank statement and notices that you’ve made payments to online gambling sites, they may reject your application. The lender may conclude that instead of paying your bills, you’re taking chances with your money by gambling, and may end up not having enough to repay the loan.
10. You Could Be Facing Discrimination
Unfortunately, discrimination still happens. It’s important that you review all of the reasons for the denial and make sure you don’t fall into any of those categories before you consider discrimination as the reason for your rejected application. If, however, you feel that the payday loan lender has discriminated against you based on your race, religion or disability, you can file a report with the U.S. Department of Justice Civil Rights Division.
Denied a Payday Loan? It Could Be a Blessing in Disguise
Payday loans are dangerous, as they often leave borrowers in a vicious cycle of debt. According to The Pew Charitable Trusts, the average payday loan borrower takes out a total of eight loans per year of about $375 each. These loans come with a total interest payment of $520. That’s almost two whole loan payments. It’s no wonder borrowers have a hard time paying back the loans.
According to WebMD, a study from the American Psychological Association found that money is a major source of stress for 73% of its survey participants. The cycle of debt from payday loans won’t help your long-term financial situation.
Payday Loan Alternatives
If you can’t qualify for a payday loan, you’ll probably end up better off financially and mentally without it. And don’t panic. You have a few alternatives.
If you need money fast, consider a cash advance app. Sometimes also called paycheck advance apps, these online lenders offer nearly the same speed and convenience as a payday loan but don’t come with outrageous interest rates and fees. In fact, some charge no interest at all, instead they rely on “tips” from customers, and some charge a small monthly fee. Earnin and Dave are two of our top recommendations.
Other options to consider when times are tough include taking on a temporary second job, selling a few non-essential items or asking friends and family for a little help until you can get back on track.