A payday loan company will often grant payday loans -- loans typically issued for less than a month for a high rate of interest -- to people with bad credit. However, the person must generally provide some proof of an ability to pay, such as a bank account or a check made out to the company. However, some payday loan companies may check to see if the person has any other outstanding loans.
Unlike most lenders, payday lenders do not typically care if a person has any loans outstanding to current lenders. While most lenders will require some measure of creditworthiness before issuing an unsecured loan, payday lenders often specialize in lending to people who do not meet the qualifications for normal loans. Therefore, an investigation into the person's lending history is unnecessary.
However, some payday loan lenders may, like other lenders, check a person's credit report before issuing a loan. A credit report will show many of the person's outstanding loans, as well as loans from her recent history. However, many of these loans will not be reported to the credit reporting bureau -- sometimes a lender will only report delinquent loans -- that compiles these loans, so this record will be at best incomplete.
Some states require that lenders not provide more than a certain number of payday loans to a borrower at any given time. To maintain compliance with this rule, payday lenders may share information about who they have given loans to. In such an instance, a payday lender would be able to check if a person has an outstanding payday loan, but not another type of loan, as this would be irrelevant.
A payday loan company may also ask you if you have previously taken out a payday loan or if you have any payday loans currently outstanding before you take out a new loan. If you are asked this question, you are legally obligated to tell the truth. This question is generally asked so that the payday loan company can remain compliant with state guidelines for the business.
- "Personal Finance For Dummies"; Eric Tyson; 2009
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