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.
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Why Was My Payday Loan Application Denied? Here are 15 Possible Reasons
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. Most require:
- An active checking account
- A source of income
- Valid ID
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.
READ MORE: Payday loan requirements
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.
READ MORE: Can I get a payday loan while unemployed?
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.
READ MORE: How payday loans work — know the dangers
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. The good news is that thanks to web-based banking, getting a checking account is easier than ever. Sites like Chime and Varo allow you to open an account with just a small initial deposit.
5. You Didn’t Pass a Veritec Check
In some states, payday lenders are required to run applicants through Veritec, a third-party database. Veritec uses any available data on your finances to ensure that you can afford to repay the loan.
Thirteen states participate in the Veritec statewide database. Those states are: Alabama, Delaware, Florida, Illinois, Indiana, Kentucky, Michigan, North Dakota, Oklahoma, South Carolina, Virginia, Washington and Wisconsin.
Borrowers who fail a Veritec check generally have a high debt-to-income ratio, not enough income or already have a loan in collections. Only a legal payday lender has access to the Veritec database. However, if you live in one of the 13 states, you can contact the provider directly.
You can request a report through CoreLogic Teletrack.
6. You Get Paid in Cash
Cash payments make it difficult for your monthly income to be verified. Some lenders even require that you’re paid via direct deposit. If you receive payment in cryptocurrency, you also may have difficulties. Many payday lenders won’t verify income through crypto wallets.
7. You’ve Filed for Bankruptcy
Even though payday lenders are less restrictive than most about bankruptcy filings, if you’ve filed for bankruptcy within the past couple of years, you may be rejected as a high-risk borrower.
READ MORE: Types of bankruptcy
8. 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.
READ MORE: If I owe a payday loan, can I get another?
9. 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.
READ MORE: Why did my credit score drop?
10. 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.
READ MORE: How payday loans affect your credit
11. 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.
READ MORE: Payday loan organizations
12: You’re in the Military
A federal law known as the Military Lending Act caps the interest rate that many lenders — including payday lenders — can charge at 36% for service members and their dependents. For that reason, many payday lenders will refuse to loan money to eligible military families.
READ MORE: Military and VA debt consolidation loans
13. You Have a Joint Account With Someone Who Has Bad Credit
If your credit score is in the fair to good range, but you share a joint account — including a spouse — with someone who has bad credit, the other party’s borrowing history will also be a factor.
READ MORE: Hardship loans for bad credit
14. 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.
15. 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.
READ MORE: Can the government help with payday loans?
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.
READ MORE: How to get out of payday loan debt for good
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.
- Payday Alternative Loans: These loans are designed to be an affordable alternative to payday loans. They’re usually offered through federal credit unions.
- Cash advance apps: 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.
- Earned wage access apps: These apps, like DailyPay, partner with employers to offer workers early access wages they’ve already earned.
- Peer-to-peer lending: Rather than lending money through a bank or credit union, peer-to-peer lending platforms connect borrowers with individual investors.
READ MORE: 12 payday loan alternatives
The Bottom Line
Though payday loans are generally easy to get, there are some key reasons why you may be turned down. Don’t panic. There are still some good options. Cash advance apps in particular can be an easy and less expensive way to borrow, as long as you do some research.
It’s not impossible. Many lenders aren’t quick to give out a second loan if a borrower already has one. That said, it is possible to get a second loan through a completely different lender. But this is a very bad idea. Instead, ask your lender about an Extended Payment Plan (EPP) or a Payday Alternative Loan. Or even try a cash advance app.
Both are short-term loans with extremely high interest rates. But payday loans are unsecured loans meant to be paid back in about two weeks or your next paycheck. Title loans are secured debt where the title of your car is used as collateral. The amount you can borrow is based on the vehicle’s value, and the repayment term may be 15 or 30 days. Title loans typically offer lower interest rates than payday loans but are still crushingly high, and if you can’t repay your title loan, you risk losing your car.
The federal government will not pay off your payday loan, but there are some government programs that, if you’re qualified, provide food or housing aid, which can help you put money toward debt. If you have tax debt, the IRS Fresh Start Program might help. Some government programs may help forgive some of your student loan debt, freeing up some of your salary for other expenses. And if you work in a medical or science field, the National Institutes of Health offers research grants that offset education costs, potentially saving you some money on student loans.
But if you need immediate assistance with food and utility costs, state and local agencies will be better places to start.
Nonprofit credit counselors and credit counseling agencies will provide free initial consultations. Other programs may require payment. Local churches and charities may provide limited free debt relief. Learn more about credit counseling.