When you apply for a payday loan in Florida for the first time, you think, „Well, I can put in some fake information, and nobody will know!”. Just don’t make it because all lenders, even private or online payday lenders, will check all your financial data to assess your creditworthiness. However, it is not the main reason why you shouldn’t lie on your loan application. Every time there is another verification process that shows your ability to repay the loan on time.

So, what includes this verification for payday loans in Florida, and what factor do lenders assess when deciding to deny or approve the loan applications? Be ready to take some notes, and let’s begin.

Credit Score and Payment History

The first factor and most important is your credit score. To verify it, the lender (a bank or a credit union) requests the major credit bureaus (TransUnion, Equifax, and Experian) to see your credit report. It also contains your FICO score. This figure ranges from 300 to 850, from the first credit score (the beginning of your credit history) to the excellent value. The higher the score, the more likely you’ll get approved by traditional lenders and the lower the loan interest rates.

However, John Ganotis, founder of MoneyTips, says going higher than 760 may be a waste of time. This credit score gives you the best interest rates for further loans. Being obsessed between 800 and 820 won’t give you better rates than with 760. So stick to it by improving your credit situation with timely debt payments.

The payment history is also related to the credit score because it stays on your credit report. This history includes information about your credit accounts (like credit cards, installment loans, or company loans) and how many accounts you’ve paid over time. Late or missed payments may negatively affect your credit score over time and decrease it by tens of points.

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Income and Employment Status

Your income and employment status shows the lender your ability to make the monthly payments without delays. For example, if you make $4,000 monthly but only spend $2,000 monthly on living expenses, you have an extra $1,000 to cover your debts.

The lender also may look at the possibility of increasing your monthly or annual income. In other words, they want to see if you won’t default on your loan over time. The practice says consumers can’t predict income increases even if they got a promotion in the last three months.

Here comes the assessment of employment status. Lenders might contact your employer and ask about the current status if you lied on the application. They will want to know what kind of job you have and how long you’ve been there.

But if you are self-employed, lenders will want to know how much money your business brings in and how long it has been open. Also, they will ask you to provide bank statements proving your clients’ payments.

Debt-to-Income Ratio

The next factor lenders consider is your debt-to-income ratio (DTI). They calculate it by dividing your monthly debt payments by your gross monthly income. It includes any debts you have, including student loans, credit cards, or medical loans.

The maximum percentage that you can reach on your DTI is 35%. However, some lenders may accept a higher figure if unexpected situations like a health emergency, job loss, or tragic family events occur. So the higher the DTI ratio, the more unlikely you’ll get approved for future installment loans or other debts.

Consider reducing your monthly payments and increasing your income to lower your debt-to-income ratio. A financial counselor will help you calculate all these figures in several moves.

Collateral

Payday loans don’t require any collateral (be it a car or your home). They are unsecured short-term loans designed to help you cover unplanned financial needs. While the maximum loan amount doesn’t exceed $500, the payday loan doesn’t need such collateral. Its lack makes it more expensive than secured ones (title loans, pawn shop loans, or mortgages).

According to the Consumer Financial Protection Bureau, if you don’t have enough money in your bank account on the due date, the lender might charge additional fees for not proceeding with the electronic withdrawal.

Loan Purpose

As payday loans are designed to cover unexpected costs like car repairs, minor medical bills, or utilities, most lenders don’t even ask you about their purposes. They know; this loan can be used for major expenses like credit card debt, home purchasing, or business investing.

However, some traditional lenders may ask how you will spend this money. That’s why you should have a suitable reason for this question. Maybe you want to go shopping for groceries or repair your vehicle. Maybe you should prove that all these expenses can’t wait till your next paycheck and that you need the money now.

Conclusion

We hope this article has helped you understand how lenders make decisions about loan applications. If you need a payday loan, knowing what factors are important to your lender and how they weigh them is important. It’s also crucial to know what factors can hurt your chances of getting approved for a loan and how to avoid those problems. By the way, you can use a loan calculator if you want to know ahead of all the fees for your payday loan.

Just be honest about your finances and abilities to avoid getting into a situation where you need to borrow money but cannot get approved for a loan. Also, tell the lender about your income, expenses, debts, and credit history. The more information you provide upfront, the better equipped they will be to decide whether they want to lend you money.