Why do loans providers ask for references?

In a perfect world, everyone would tell the truth and there would be no need to question or verify anything that a person says. But we do not live in a perfect world, far from it. Fraud is big business and there are opportunists in every corner of every industry, where there is advantage or money to be had. It is not that a lender doesn’t want to trust you, it’s just that in order to do so they have a responsibility to satisfy their own need and interest, in confirming that information you have provided is true and real.

One of the ways they do this, is to request references. Some of the reasons that this particular approach is taken, are as follow 

Quicker than lengthy process of sending documents back and forth

Payday loans need to be fast. In the area of the market that they operate, speed is critical. With that in mind, it is not reasonable to be sending documents back and forth for confirmation of details, this takes far too much time. On the other hand, to ensure responsible lending and confirm accuracy of details provided there needs to be some form of verification. That is why they approach employers for reference and for confirmation of details.

References give an extra level of security

In traditional lending methods, such as personal loans and credit cards, you may also find that the application process requests references. In these cases, they are usually requested as part of the endeavour to prove your reliability, credibility and honesty. The request for referees is particularly commonplace with first time applicants. One of the reasons for this, is that if you become a risk and try to do a runner or move on without paying your loan, the lender has a source to contact where they may be able to obtain information about your whereabouts or your condition. While not a guarantor and not responsible for your balance, they may be contacted to aid in finding where you are.

References are not a matter of trust and are not a personal reflection on you. Rather they are a matter of security, in ensuring that fraud is prevented where possible, that funds are released only when truly applicable and that they can be recovered in the event of an undisclosed change in location.

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