Payday loans can be helpful when you are facing unexpected costs, such as car repairs, medical bills, or home expenses. Payday loans, or cash advances, provide you with a lump sum of cash. This cash can tide you over until your next paycheck, at which point the lender generally expects repayment.
Being denied for a payday loan can be very frustrating. Here are seven reasons why your loan may not be approved.
Common Reasons for Payday Loan Denial
#1) Bad Credit. Payday loan lenders run soft credit checks before they approve loan applications. These soft credit checks provide them with your background information and brief credit history. If you have bad credit or a poor debt-to-income ratio, they may choose not to grant approval.
However, according to GreenStarCash, even though lenders will always run a soft credit check, the borrower’s credit history alone will not result in a loan denial.
#2) Outstanding Loans. Many states have regulations on how many payday loans can be taken out at one time. While lenders may not be able to seek retribution for outstanding payday loans, these loans can affect your future borrowing.
If you live in a state that only allows a borrower to have one payday loan at a time, then any outstanding loans could be grounds for denial. Also, lenders may choose not to extend a loan if you have not repaid previous loans as they don’t want to take on the risk.
#3) Your Banking History. Marks on your banking history may also be cause for a cash advance denial. Most loan applications require your most recent banking statement. Things like frequent overdrafts may lead the lender to believe that the chances of you repaying the loan are low. This can result in them not approving your application.
#4)Lack of Direct Deposit. If you apply for an online payday loan but don’t have a checking account for direct deposit, you will probably be denied. Payday lenders who approve online loans need an account in which to deposit the funds.
Additionally, payday lenders often require that you sign an ACH agreement so that they may withdraw repayment funds when your loan comes due. Without an active checking account, and no way for lenders to withdraw money, your loan application may be denied.
#5) Failure to Meet Eligibility Requirements. Payday lenders each have their own eligibility requirements, but some are mandated by the state. If you fail to meet any of these requirements your loan application may be denied.
Payday lending is illegal in some states, if you are a resident of a state that does not allow payday loans your application will not be approved. Similarly, if you are not a US citizen approval isn’t possible.
You must be eighteen years of age or older to receive a payday loan. However, some lenders have a higher age limit of 21 years. If you are underage or cannot provide valid identification your loan will be denied. Military members are also not approved for cash advance loans due to the Military Lending Act (MLA) law.
#6) Not Meeting Additional Requirements. Lenders may have various additional requirements. Though not very common, they can include things like access to a fax machine to submit documents, or a working telephone number. If you cannot meet these requirements, the lender may not approve your loan application.
#7) Income Issues. The majority of payday lenders require that you have current employment. They often want proof of employment via a recent pay stub, paychecks, or direct deposits from your place of work. If you can’t prove your employment, you may be denied. Also, those who use social security as their income, are self-employed, or are considered an independent contractor may not be approved for a payday loan.
Even if you are employed, your loan application may still be denied. This is usually because the lender deems that you don’t make enough money to be eligible for a payday loan. Lenders may have a minimum monthly income amount in order for borrowers to qualify. Lenders may not consider welfare or unemployment checks as part of the borrower’s monthly income.
How To Avoid Denial
It is always a good idea to review the payday lender’s loan eligibility requirements in detail before you apply. Make sure that you meet all of the criteria and have all of the required documents in order before you go through with your application. This can help lower your chances of receiving a denial.
Another great way to avoid denial is always keeping hold of your pay stubs. A paystub can help you get your loan approved since it contains all your payment details etc, Therefore, it would be a good idea to use a paystub generator and keep all your paystubs organized and in place for when you need them.