How often do you have extra money in your account just before payday? For many people, the answer is never!
A little-known fact is that cash lenders pay very close attention to the fluctuations in your bank balance.
This provides important clues into your level of financial discipline and your capacity to take on an additional personal loan.
When applying for a cash loan, lenders will always request to securely view your last 90 days of bank statements.
Therefore, it is important to understand how they read them so you can demonstrate good financial habits.
In this article, we’ll discuss the importance of disposable income and introduce you to the concept of account balance depletion.
Why Lenders Look at Your Bank Balance
When assessing an application, the lender must make a legal judgment on whether you have the capacity to comfortably make the required repayments.
If you have surplus funds at the end of every pay cycle, this is a massive tick against your name.
However, keeping a huge balance in your account at all times is not a prerequisite for loan approval.
Lenders look at the nuances of your spending habits, including:
- Account depletion on payday
- Account depletion over time
- Minimum balance through a pay cycle
- Final balance at the end of a pay cycle
This is only one element of a broader credit assessment, but it is helpful to understand the concepts.
What is Bank Account Depletion?
Bank account depletion is essentially a measure of how fast you spend your money after the day you get paid.
Consider the following two customer examples who are both applying for a cash loan where the proposed repayments are $75 a week.
Both applicants earn a weekly salary of $1,500 after tax.
Customer 1: Rapid Depletion
Regular weekly expenses:
- Rent: $400
- Food: $150
- Utilities: $75
- Transport: $50
- Credit Card Repayment: $250
On paper, his weekly expenses look well handled, with $575 of leftover funds for savings and recreation.
However, he borrowed $200 from a mate last week because he was short, so he pays that back immediately on payday.
It’s Thursday night, and he heads to a pub near work. He quickly drops $200 on drinks and a meal.
Then, on the way to work the next day, he gets a flat tyre. There goes another $100 to replace it.
We are now less than 36 hours since he was paid, and the account balance has just $75 left. It is not even the weekend yet!
Customer 2: Steady Management
Regular weekly expenses:
- Rent: $400
- Food: $150
- Utilities: $75
- Transport: $50
- Savings: $250 (He saves this money instead of carrying credit card debt)
What happens to his remaining $575? Thursday has been a hard slog, so he opts for a home-cooked meal while watching TV.
24 hours later, the remaining account balance is untouched.
The weekend comes. He goes for a morning run (a free activity) and then heads to the pub for lunch with mates. $100 gone, but he’s home at a respectable time.
Sunday is a lazy day of cleaning and shopping for the week.
By the end of the weekend, there is still $475 in his account.
After factoring in $75 for coffees during the week, he still has over $400 left before his next payday.
Who Would You Rather Lend Money To?
Customer 2 has more than enough money left in his account at the end of the week to comfortably make a $75 loan repayment.
His savings habit and steady spending act as strong signals to the lender that he is a highly reliable credit risk.
Customer 1, on the other hand, burned through almost all of his discretionary money in less than a day!
On paper, it appeared as though he could afford the repayments, but the reality of his bank account depletion tells a much riskier story.
This is exactly why cash lenders track your account balances over the 90-day period.
Managing Your Bank Account Balance
Before applying for a cash loan, it is highly beneficial to manage the pace of your account depletion.
While Customer 2 seems to have a perfect handle on his finances, you’ll notice no unexpected expenses popped up.
Next week, he may not be so lucky. Life happens, which is why having a buffer is so important.
If you relate more to Customer 1, how could you slow your account depletion while preserving your lifestyle?
- Spread out discretionary spending
- Set a strict budget for recreation
- Spread out transfer of funds
A few small, proactive changes can achieve account preservation in that critical first 24 hours, maintaining a healthy bank balance for the entire pay cycle.
Frequently Asked Questions
Do I need a large savings account to get a cash loan?
No, you don’t need a massive savings balance to be approved for a cash loan. Lenders care more about consistency and ensuring you don’t spend every single dollar you earn within a day of getting paid. Showing a small, consistent buffer is enough.
Will I be declined if my account goes into the negative?
If your account frequently drops into the negative or you regularly incur overdrawn or dishonour fees, it is a red flag. You should aim to keep a positive balance for at least 90 days prior to applying.
How far back do lenders look at my bank balance?
Cash lenders will securely scrape and review the last 90 days of your bank statements. They use this exact window to calculate your average income, verify your living expenses, and assess your depletion habits.
What if I transfer all my money to a different account on payday?
If you immediately transfer your spending money or savings into another account that the lender cannot see, it might look like rapid depletion. It is best practice to either link all your relevant accounts during the application process or clearly label your outgoing transfers as Savings so the lender understands your money management structure.
Building Your Financial Muscle & Applying
A side effect of proactive balance management is that you will strengthen your financial muscle and the ability to have money in your account and not immediately spend it.
Only good things will come from developing this habit, and your bank statements will present beautifully to any lender.
Even if you identify with Customer 1 today, you can make minor adjustments over the next 90 days to get closer to Customer 2.
When your bank statements are looking healthy and you need a cash loan between $2,001 and $5,000, the team at Gusto Cash is here to review your application fairly and transparently.
