The payday loan industry is able to operate by relying on the fact that customers are not going to let their loans become delinquent. Delinquent loans pose a problem for payday loan business owners and management teams, and also for the people who were borrowing the money. When a loan becomes delinquent and is sold to a debt collector, the loan issuer may only get back pennies on every dollar they leant. It is much more profitable to avoid delinquent accounts all together by insuring that due diligence is done on each and industry best practices are followed. While many processes are automated by software, like borrowing history or credit checks, here are three less conventional ways that a lender can verify their customers to keep delinquent repayments to a minimum:
It's important for a lender to know every detail about a person who is trying to borrow money, including what they plan on doing with the funds. Knowing exactly what someone is planning on doing with the money can help a lender make a safe decision on whether or not they should provide someone with a loan. If someone wants extra funds to buy a luxury item or take a trip, for example, then they may not have any real intention of paying the money back when they should. However, someone who desperately requires funds for an emergency situation for a need, and not a want, is much more likely to pay the loan back.
Another practice that a wise lender will observe is to request repayment as quickly as possible. Someone with a short repayment time will be more likely to have their loan fresh on their mind when they get their next paycheck, rather than waiting until several weeks later when other financial obligations have already come into play.
People who live near a payday loan facility are much more likely to repay the money that they are borrowing. A high number of people who allow their loans to become delinquent live farther away from the lender's establishment. This may sound odd to some people because there are companies that offer payday loans through the internet, but it is more common for distant people to let their loans become delinquent. A smart lender will incorporate a distance check into their payday loan verification process.