From time to time, you might find yourself in need of fast cash to help you meet an emergency expense before payday. You might use your arranged overdraft or put the payment on a credit card, but another common type of credit people use for unexpected payments is a payday loan.

Payday loans are classed as high-cost-short-term credit which means they have a high APR, or annual percentage rate, but you can only borrow for a short amount of time – usually between 1 and 6 months, unlike a personal loan from a bank which you can borrow for years. Although payday loans have high interest rates, because you only borrow a small amount of money and for a short time, the actual amount you repay is often not as much as you think. However, despite the small loan amount, payday lenders must still conduct comprehensive affordability assessments.

What is an affordability assessment?

An affordability assessment is really what it says on the tin: a lender will assess your ability to make the required loan repayments in order to ensure the loan is affordable. Payday lenders in the UK must be regulated and authorised by the Financial Conduct Authority (FCA) which states that lenders must conduct affordability and creditworthiness checks, although it doesn’t specify how in-depth the checks must be. This is why different payday lenders may have different application processes and procedures.

As newer technologies develop, many lenders from across the credit market strive to make their application process smoother, while still gathering sufficient data to make responsible lending decisions. In some cases, this may mean lenders use open banking and alternative credit reference agencies to assess your application.

What is Credit Kudos?

As part our application process at, we may require additional verification of your key financial information. This just means we need to make sure that the information you entered in your application form is an accurate portrayal of your circumstances. While we trust that you would submit an honest application, it can be easy to forget certain regular payments or miscalculate your income. For example, you might not include monthly commission earned on your basic salary or you may enter your weekly pay where we require your monthly salary.

So that we can keep the application process quick and simple, we use a third-party alternative credit reference agency called Credit Kudos which uses open banking to view your financial data. It might sound intimidating, but Credit Kudos is regulated and authorised by the FCA. Plus, Credit Kudos aim to make credit more accessible to everyone, even those with a poor credit history.

How does open banking help payday lenders assess an application?

As well as an affordability assessment, lenders must also do a creditworthiness check which, amongst other things, includes viewing your credit file to see your recent borrowing history. Unfortunately, at the moment, credit file data for lenders is not real-time. It can often be up to a month out of date which can make it difficult for lenders to assess your application accurately. Open banking allows lenders to view your real-time financial data, which means they can have a better understanding of your financial circumstances. In some cases, this means being able to approve applications which would otherwise have been declined based on credit history alone. In other cases, this may mean declining an application. In either circumstance, as a customer, it’s good to understand that the lender has to make a responsible lending decision and even if you think the loan is affordable, they may recognise certain transactions or financial patterns that mean repaying the loan could worsen your financial situation. Of course, if you object to the loan decision, you can always appeal and ask that the application be reviewed manually as many lenders use an automated system.

Ultimately, open banking means payday lenders can make better, more accurate lending decisions resulting in a fairer credit service for you as the consumer.

Find out more information about Credit Kudos

Although government-backed, open banking is a relatively new technology. This means platforms which provide open banking services are even newer and so it’s not uncommon to have never heard of companies like Credit Kudos.

Credit Kudos have an easy-to-navigate website full of useful information about open banking which has both the business side and customer side available to both parties, so you can see how businesses use Credit Kudos as well.

If you don’t want to go through Credit Kudos, the chances are that the lender will be unable to proceed with your application. If your concerns involve financial security, then hopefully Credit Kudos’ website above can demonstrate that open banking platforms are secure and actively work against fraud. In fact, lenders may use third parties like Credit Kudos as part of their fraud prevention procedures. Credit Kudos can only access your financial data with your consent, and once the connection has ended and the report has been generated, they will no longer be able to view your financial information.

If you are applying for one of our payday loans and you are unable to use Credit Kudos because your bank is not listed, please get in touch so that our helpful customer service team can advise you further.