Let’s be honest: Payday lenders don’t have the best reputation. They’ve been forced to clean up their act in the last few years, but you might still be alarmed when a payday lender asks for your internet banking logins. So should you panic and hold down the power button your computer/phone, or is there a legitimate reason for the request?
This quick guide will take you through why lenders ask for this information, what they do with your internet banking logins, and how your financial details are kept secure during the process.
Warning: late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk.
Please note: high-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.
Why do some lenders need my internet banking details?
There are three main reasons why a lender might ask for your internet banking details:
1. To assess affordability.
Along with a traditional credit check, lenders can use your bank account transactions to get an idea of your income and outgoings to help them decide whether a payday/short term loan would be suitable, and what credit limit would be affordable.
2. To make deposits to your account when you’re at risk of going into unauthorised overdraft.
Overdrafts can be expensive – especially when they’re not authorised. If yours is more expensive than the interest on a short term loan, then you may decide to set a balance limit at which a payday lender should automatically issue credit to your account.
3. To collect repayments when there are sufficient funds in your account.
Some lenders can use visibility of your online banking to automatically take a repayment if they see money come into your account.
However, it could be worth checking with your bank first to see how they would view your internet banking login details being provided to a third party. For some, it may hold you liable if there are any unauthorised transactions, or fraud, as a result of you giving out your banking details.
Do lenders log into my account to view my transactions?
When you hand over your login details to a short term lender such as SafetyNet Credit, it will use a third-party company (Yodlee is a popular company that has provided this service to businesses for a number of years) to access “read-only” copies of your transactions. This is done almost instantly and more importantly, securely – using encryption.
Do I have an alternative to sharing my login details?
Absolutely, although it may rule out some potential lenders.
The majority of payday/short term lenders do not use this facility, so if you don’t need the automated deposits/collections, there are plenty of lenders who aren’t going to ask for your online banking information. These lenders may still request to be emailed copies of bank statements, however.
Many lenders, for example Tappily, which previously used services like Yodlee to effectively login to your internet banking and scrape data are now opting instead to use open banking. With open banking, your bank can legitimately share transactional data with third parties, if you give it permission to do so. In this situation you won’t need to hand over your internet banking login details, but you will be prompted to give your bank permission to share transactional information with the lender. If you decide to do this, your bank will verify that the lender is authorised, before securely sharing your data via an API (application programming interface). You can then revoke your permission at any time (although if you’re still using a lender, be aware that this may invalidate the terms of your agreement).
Unfortunately it’s not likely to be a case of simply saying to a prospective lender “Can we do this via open banking instead?” – if it doesn’t suggest this method itself, it’s almost certainly not geared up for it yet.
Compare short term loans
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You can compare how much the loan that you have in mind would cost from a range of lenders by using the table below.
Important information: You should always refer to your loan agreement for exact repayment amounts as they may vary from our results.