Why Do Payday Loans Have No Faxing Involved?

If you've applied for any kind of loan in the past then there's a good chance that you will have been asked to fax documentation through to the lender. This is usually done to confirm specific details, including your latest bank statements and possibly even your pay slip from work. So why don't most payday loan companies request the same information?

When you are asked to fax documents, it creates an additional delay. Not only do you need to locate the original documents, but you then need find a fax machine too, which is becoming increasingly challenging. Some lenders will accept scanned documents as an alternative, but this still complicates what is an otherwise simple process.

The reason why banks will still often expect you to provide any such supporting documents for long-term personal loans is simply because they need to verify your financial stability. If you're borrowing thousands, potentially even tens of thousands of pounds, then the lender needs to be sure that you will be in a position to repay. This means accumulating as much information as possible and utilising all of the data available to them to inform decisions.

In the case of payday loans, any such information gathering would be a little excessive. After all, these aren't loans for thousands of pounds, nor will they be repaid over the course of a number of years. But not only do short-terms lenders not need the same amount of information, they also won't be looking to only accept those with a spotless credit history.

After all, if you only want to borrow £150 for 10 days, why would a payday loan company need to know that you missed a bill payment last year or have 3 complete bank statements? Whilst checks still need to be employed, they don't need to reach the same levels as those employed by the long-term loan providers. This is why some form of proof of employment may need to be offered and bank details will need to be provided and verified. However, this shouldn't delay the application process unduly and will only be required when using a company for the first time.

So whilst the payday loan providers may be seen as taking on more risk, in so far as they accept applications from people who would possibly be rejected elsewhere, they do off-set this in a number of ways. Firstly there’s the interest. With customers required to pay up to £25 for every £100 they receive, lenders are able to recoup any losses from defaulting customers quickly. Whilst they will do everything possible to avoid accepting applications from those who are unlikely to be able to find the required funds, it’s an unfortunate bi-product of any kind of lending.

Secondly, the repayment is done in one go. So the lender isn’t left waiting months to recoup the loan amount, allowing them to simply use the recipient’s salary as a guarantee. Longer loans generally add more opportunities for borrowers to get into financial difficulties and default, however this isn’t the case with payday loans for obvious reasons.

Finally, the loans are often for relatively small amounts. Only after a customer has successfully repaid a number of loans with the same company will they have built up enough trust to access over £500. Therefore, for most first time borrowers, there is a clear borrowing ceiling of between £400 and £500 – again, this helps reduce the risk even further.

So for these reasons and more there is really no need for payday loan companies to ask for customers to fax documentation through. Some will ask for proof in some form, but usually a quick phone call or email is sufficient to provide all the reassurance needed for lenders.

By: Vincent A Rogers

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Vincent Rogers is a finance writer who writes for a number of finance businesses. For payday loans, he recommends Paydaypower.co.uk