What Checks Do Payday Lenders Carry Out?

Payday lenders in the UK carry out a number of checks to ensure that an applicant is eligible for a loan. 

Typical checks carried out by payday lenders include:

• Name, age, location checks
• Income and employment checks
• Credit checks
• Affordability checks
• Open banking
• Phone calls to customers

By ensuring that a borrower has a regular income and employment, it means that they should have a sufficient amount of money coming in to meet their monthly repayments. 

This is accompanied with credit checks and affordability checks to consider what their monthly expenses are and what other loans or credit they might have open – and finding the right amount that the individual can borrow without falling into financial difficulty.

How Checks Work For Payday Lenders

Once an application is submitted, payday lenders and most mainstream lenders, they can carry thousands of automated checks.

If it meets an initial criteria, the lender may be able to give them an instant decision on the screen, pretty much seconds after completing the initial application. This may present an indicative loan offer which may be permissible subject to further checks.

As the loan application progresses into underwriting, customers go through all the checks – once they have passed one check, they move onto the next. 

Any details that are unclear will usually require further checks by the lender and they may request additional supporting documentation including payslips, bank statements or utility bills. 

Name, Age and Location Checks 

At the beginning of any payday loan application, the borrower will be required to enter their full name, date of birth and address. Early on, a lender can tell if these details are consistent because they are cross-checked against the electoral register and this is covered in a soft or hard credit check

Income and Employment Checks

When applying, borrowers will need to share details of their monthly income, employment position, place of work and number of years they have been working there.

By understanding their monthly income, the lender can assess whether a person can afford to borrow the amount they have requested – taking other details into account such as monthly expenses and other credit they may have open.

In many cases, a lender may request proof of income or employment through a payslip or bank statement.

Affordability and Credit Checks

Using one of the main credit reference agencies in the UK such as Experian or Equifax, a lender is able to carry out a credit search or ‘credit check’ against an individual. This instantaneous check provides an insight into their previous credit history, debt obligations, recent loan enquiries and what amount of debt they have open i.e loans, credit cards, mortgages. 

A credit check can identify an individual’s credit score, ranging from 0-999, with higher numbers associated with ‘good credit’ and lower numbers associated with ‘bad credit.’ Payday lenders actively use these numbers and often set a minimum credit score threshold for approving loans.

With affordability checks, they will weigh up the borrower’s income and expenses and consider how much a customer has requested to borrow and how much they can afford to repay. With effective affordability checks, the lender may decide to adjust a requested loan amount in line with what a borrower can afford, such as changing an £800 loan request to a £400 loan. In some cases, the lender may decide to decline the application.

Open Banking

Open banking in the UK lets people share their bank account information safely with lenders when they apply for a loan. 

Instead of sending lots of paperwork, the lender can quickly see your income, spending, and regular payments through a secure connection to your bank. 

This helps them check if you can afford a payday loan and make faster decisions. It also reduces mistakes because the information comes directly from your bank, so it is accurate and up to date.

Phone Calls

The lender may phone the individual on their mobile to run through and confirm details of their loan. This allows them to ask follow up questions relating to income, employment or monthly expenses.

A lender will usually call the application on their own phone and they will never or rarely call their a work.

Why is it Important To Give Real Information When Applying?

It is important to give true information when applying for a payday loan because lenders are able to check your details across things like credit reference agencies, open banking and electoral registers. 

Whilst it might be tempting to inflate your monthly income to try to borrow the largest sums, any discrepancies about your income, employment or general name, age or contact details – will likely be picked up. This can delay the progress of your application and cause the lender to request further documentation to proceed to the next level.

Are There Payday Lenders With No Credit Checks?

No, credit checks are an essential part of the application decision process. In fact, the FCA which regulates the lending industry, has made it a requirement for all payday lenders to run credit checks before approving a successful loan. Read about payday loans with no credit checks.

There are certain financial products where credit checks are less utilised including logbook (car) loans and secured loans against property, which require you to use valuable security and the success of your loan is based on this. The risk is that you may lose this security, such as your car or home, if you do not keep up with repayments successfully. 

What Can Be Done To Improve My Credit Score?

There are certain things that you can do to improve your credit score which will make you a more attractive candidate to lend to:

Join the electoral register – Joining the register to vote will confirm your name, age and address with the local authorities and this improves your credit score by giving you credibility.

Repay all credit on-time – Get used to paying all credit cards, loans, mobile phone bills and any other bill on time to increase your credit score or maintain a strong score.

Remove any cards that you do not use – Having multiple credit cards and store cards open can make you look like a riskier proposition by having access to so much credit. 

Monitor your credit score – You may be unaware of your credit score but monitoring it can be cheap, with free trials, £2 credit reports available and monthly reports. You can likely find suggestions to improve your score and you can monitor the progress. Read more on how to check your credit report.