A rejected loan application can sometimes feel emotionally devastating. However, a declined payday loan application isn’t the end of the world. And instead of wallowing, you should be figuring out why your loan was rejected. Then, after you’ve figured out what went wrong, you can make efforts to improve your chances.
Why Do I Keep Getting Declined For Payday Loans?
Here are three reasons why your payday loans keep getting declined:
- Low credit score
When applying for a loan, the lender usually takes your FICO score and other indicators, such as your income, into account to make a decision. Lenders use your credit score to determine if you are a good money manager. Your credit score is influenced by your payment history and the amount due. Unsecured personal loans usually have stricter lending requirements.
Some lenders publicize their minimum requirements, and if you don’t meet the said requirement, it’ll be rather tricky to get a loan from them. Even if you get approved, you’ll have to pay a higher interest rate which compensates for their losses if you ever default on the loan.
- A high debt-to-income (DTI) ratio
The DTI ratio compares your total monthly debt to your monthly income. For example, say you have a monthly debt payment of $5,000 and an income of $8,000. If you divide the debt payment by your income, you’ll get a ratio of 62.5%. Most lenders will consider a ratio of 62.5% as high, and they can interpret it to mean you’ll struggle with repayment.
A healthy DTI ratio is anything lower or equal to 35%. With a 35% DTI, you’ll have a higher chance of getting a loan.
- You tried borrowing too much.
Lenders also reject loan offers from people who try to borrow more than they can pay. When you apply for a loan, the amount the lender approves depends on your income, debt obligations, and a few other requirements. If a lender reviews your loan application and believes you cannot pay back the amount you’re requesting, they’ll reject your loan application.
What Two Things Should You Do If Your Loan Is Rejected?
A denied loan application can leave you feeling lost and unsure of your next steps. But there are two vital steps to take if your loan is rejected.
- Find out the reason for the rejection.
You’ll need to find out why they denied your loan application before you can reapply. Lenders are usually happy to tell you why, and they are required by law to share certain disclosures so you don’t remain ignorant about the denial. Some common reasons loans are rejected include.
- Poor (or no) credit:
When you apply for a loan, lenders reference your borrowing history, which is represented in your credit scores. They want to see your track record of borrowing money and repaying. But, if you haven’t borrowed much in the past or had difficulties and even defaulted on loans, it may cause your loan application to be declined.
- Insufficient or unverifiable income:
Lenders are obligated by law to determine your ability to repay some loans, such as home loans. Suppose a lender believes you won’t be able to repay the loan, either because you don’t earn enough or because the lender can’t verify your income using the information you gave. In that case, your loan application may be denied.
- Other issues:
Your loan application may be denied for less obvious reasons, such as submitting an incomplete application or having a length of residence that the lender deems too short.
- Review your credit report.
The second thing you should do is thoroughly analyze your credit report. Check for inconsistencies and errors, note any you find, and dispute them with the credit bureaus. According to the Federal Trade Commission, at least one in every five consumers has an error on their credit reports.
It’s possible, for example, that someone else’s account information was added to your report. Alternatively, if you have previously filed for bankruptcy, ensure that accounts that have been discharged aren’t included in the report.
You should also check that your account information is accurate. For example, make sure that all bills paid on time are marked as paid.
Why Has My Loan Application Been Rejected?
Let’s look at a few reasons why your application may have been rejected.
- No bank account
It is possible to get a payday loan even if you don’t have a bank account, but the chances of that are slim. Most lenders would rather send the money to your account, and when your due date reaches, withdraw the payment. Even those who offer cash loans will check your bank statement when deciding whether or not to approve your application.
- Overdrafts on your bank account
Lenders will typically ask to see a copy of your bank statement when you apply for an online payday loan. If there are dishonored payments, they may reject your application because you are a risk. Dishonored payments are attempts by other lenders to debit your account, which failed to go through due to lack of funds.
- You don’t meet the requirements.
Payday loans are only available to permanent residents and US citizens, and your loan may be rejected if you don’t meet either one. Additionally, payday loans are not an option for those on work or student visas.
- You get cash payments.
Lenders typically check your bank account to ensure you have a consistent monthly income, and unfortunately, cash incomes are hard to verify. Some lenders may even prefer if you were paid via direct deposit. People who receive cryptocurrency payments may face similar issues. Many lenders cannot look into your cryptocurrency wallet to verify your income.
- You recently filed for bankruptcy.
Lenders assess the risk of lending to you based on your financial situation. For example, if you have recently filed for bankruptcy within the last year, they may flag your profile as high risk and reject your application.
What Is The Biggest Problem With Payday Lenders?
A checking account and a job or source of income are well-known requirements for obtaining a payday loan. This fosters an environment where borrowers can readily get loans if they face financial difficulties. In addition, due to the lack of regulation in the industry, borrowers are frequently able to receive many payday loans in the same month.
Payday loans are already considered predatory because of their high-interest rates and short repayment term. Still, in a bid to collect their money back, many payday lenders cross the line. Some engaged in unethical methods, such as sending threatening letters to debtors, trying to scare them into fully paying back without letting them understand the options available to them. With Capital Pacific Bank, securing a payday loan is the easiest thing. So what are you waiting for? Take advantage of our services by filling out our application today!