Why some payday and short term lenders ask to access your internet banking

Here are the reasons why payday and short term lenders might ask for your online bank details when applying.

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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.

Let’s be honest, payday lenders don’t have the greatest reputation, despite recent regulations forcing them to clean up their act. So, you might still be alarmed if a payday lender or personal loans company asks for your internet banking logins, or requests to view your transaction history. So should you panic and hold down the power button on your computer/phone, or is there a legitimate reason for these requests?

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How do lenders access my transaction data?

There are two ways lenders may want to access your transaction data:

  1. By requesting your internet banking logins and then “scraping” your account history.
    Although not illegal, this is the less legit way to access your data. The lender will use a third-party software (Yodlee is a popular company that has helped businesses do this for a number of years) to access a “read-only” copy of your transaction history. Important to note: for this approach, you’ll have to hand over your login details, which may feel unnerving to say the least.
  2. By asking you to authorise a connection to your account using “open banking”
    The newer and more secure of the two approaches takes advantage of a government-led initiative called open banking. Banks can make customer transactional data available to an FCA-regulated company, but only when the customer themselves requests this.

What is open-banking?

The good news is that lenders are using the more secured approach to viewing your transactions, open-banking.

With open banking, your bank can securely share transactional data with third parties, if you give it permission to do so. You won’t need to hand over your internet banking login details in this situation. 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). More importantly, at any time you can revoke permission and your bank woon’t be able to share your data, 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, then the lender probably doesn’t have the right resources to conduct open-banking.

OK, but why does the lender need to see my online banking?

There are three main reasons why a lender might ask for visibility of your bank account:

  • 1. To assess affordability.
    Along with a traditional credit check, lenders use your bank account transactions to get an idea of your incomings and outgoings. This helps them decide whether a payday/short term loan would be suitable, and what credit limit would be most affordable for you.
  • 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 your overdraft 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 will automatically issue credit to your account. Lenders should never initiate a loan without you asking them to do so first.
  • 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. This way you won’t collect debt or pay interest on a loan you’re able to pay back.

I don’t want to share my login details… do I have an alternative?

Absolutely, although it may rule out some potential lenders.

It’s completely understandable if you don’t want to hand over your login details. Especially since your bank probably wouldn’t approve of your details being shared with a third party, as there’s a great risk of fraud being committed. Moreover, since you shared your details, you could be held liable.

Most payday/short term lenders don’t use either of these approaches, 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 your bank statements, however.

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8 Responses

    Default Gravatar
    StevenDecember 22, 2018

    I want a small loan for Christmas. I’ve sent them my bank details but they want my password too. Is this normal?

      AvatarFinder
      JoshuaDecember 23, 2018Finder

      Hi Steven,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      Yes, in some instances, the lender would need the logins. When you hand over your login details to a short-term lender, they will use it to access “read-only” copies of your transactions. This is done almost instantly and more importantly, securely – using encryption.

      If you are not comfortable with this, you have the option to use other lenders however this would decrease your choices.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

    Default Gravatar
    AcjoinerOctober 20, 2018

    I have applied for a business loan on http://www.accessloan.co.uk and I am unsure if it is a scam as they have asked for the first months initial payment upfront. So, I’m just wondering if they are genuine or not?

      AvatarFinder
      JeniOctober 24, 2018Finder

      Hi Acjoiner,

      Thank you for getting in touch with finder.

      Since getting a loan is essential if you have business you must be vigilant in choosing a bank/lender to get a loan with. Here are some tips if you consider getting a loan from a lender or company you have never heard of.

      – Check for concrete details. Look for a physical address on the company’s website. If this physical address is a registered office, even better. Check their website for a phone number – preferably a landline number – then call this to see who answers.
      – Googling a company is a good way to get to know more about who they really are behind their superficial image. Remember that what are said on forums can act as a useful indicator when you are not sure about a company.
      – Search the FCA register. If you are looking at a company that deals in financial services or products, there is one simple way to check out their credentials: look them up on the Financial Conduct Authority (FCA) register.

      As per this FCA register page, Access Loans & Mortgages is no longer authorised, reference number 303753.

      I hope this helps.

      Please feel free to reach out to us if you have any other enquiries.

      Thank you and have a wonderful day!

      Cheers,
      Jeni

    Default Gravatar
    MarySeptember 22, 2018

    Is it normal for an online loan company to ask for your bank pin number if so why?

      AvatarFinder
      JoshuaSeptember 25, 2018Finder

      Hi Mary,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      Generally, what lenders ask are your bank details as well as your online banking logins. In your case, if your pin is being asked, this means that they might directly use your ATM to withdraw money on the day you are scheduled to pay your debt. If you are not comfortable with this, you might need to find other lenders. Please be sure as well you are working with a licensed payday lender.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

    Default Gravatar
    robAugust 7, 2018

    am nervous about giving my bank details online for a loan .. Is there any loan companies that dont ask for your bank details ?

      AvatarFinder
      joelmarceloAugust 8, 2018Finder

      Hi Rob,

      Thanks for leaving a question on finder.

      When reviewing your application, some lenders like to see how much money you have to get an idea as to how you handle your personal finances. A bank statement can easily provide this information. Bank accounts also make it easier for lenders to transfer your requested funds quickly. Beyond this, a bank account can show lenders that you’re financially healthy and not a borrowing risk. The less of a risk you are, the better the chance you have for approval and competitive rates.

      Without a bank account you’re generally limited to short-term loans. Auto title and pawn loans typically require collateral, while other options don’t.

      Cheers,
      Joel

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