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Understanding Repayment Terms

Payday loans are, by their nature, a type of short term loan. A payday loan will be suitable for you if you are looking for a personal loan which is to be paid back in full within a short period, rather than extending for months or years.

As a general rule, a payday loan is taken for a specific short period of time and used to cover emergency expenses. The size of a short term loan should make it possible to repay within a short time, because the loan amount generally is relatively small, ranging from $100 up to $1000.

Before you apply for a payday loan, double check with the payday loan company to see exactly what the time frame is for repaying your payday loan.

Payday Loan Repayment Terms

When setting up the terms of your payday loan, the payday loan company will take into consideration the date when you will receive your paycheck from work. Generally that is when payment will be due on your payday loan, meaning that if you receive your paycheck once every two weeks, the repayment will be due within fourteen days.

If your payday is once a month, repayment will be within thirty days. However, this can vary according to the payday loan company you are dealing with and the amount of your monthly income. The lender might require the whole amount to be repaid at one time, or it may be divided into installments.

You must repay your payday loan according to the terms you signed on. Failure to do so can result in additional fees such as penalties and interest charges. These often amount to quite a sum.

Rolling Over a Payday Loan

If you are unable to repay your payday loan according to the original terms, the lender may permit you to roll over the loan – for a steep price. There is a usury cap, though, in many states, which limits by law the amount a lender is allowed to charge for a payday loan.

The usury cap regulates the amount of interest that can be charged on a loan. Fees in excess of this amount can cause the loan to be treated as void. In such a case, you will probably have to pay only the principal on the loan.

Legislation Regarding Payday Loans

By law, a maximum number of rollovers are permitted to payday loan borrowers who cannot afford to pay off the loan. Once this figure has been reached, state law which has been passed in eight states so far stipulates that payday loan companies must offer borrower the option to pay in installments. While paying in full may not be possible, an installment plan provides borrowers a more manageable way to gradually pay off their payday loan.

Contact your payday loan company if you see that you cannot afford to pay your loan in full. You will need to request special repayment terms – either a rollover or an installment plan. This will depend on the terms and condition of your loan, as well as your personal situation.

Loan contract

According to your loan contract, the payday loan company will quite possibly have the right to obtain payment by either garnishment of your wages or a levy or lien on your property. These are very serious actions.

To avoid this type of situation, if you cannot manage to pay the full amount of the loan within the contracted time, inform the lender immediately in order to work out alternate repayment terms.

Different policies regarding repayment terms

Each payday loan company and every state may have different policies regarding repayment terms. To protect yourself, make sure that you understand what is written in your specific contract about the loan terms and conditions before you sign.

The advantage of payday loans is that they can be very helpful and convenient when you need some extra cash for a short period. Securing a payday loan rather than risking charges for NSF checks or bank overdrafts may be a very wise course of action. Just make sure that you have a thorough understanding of the repayment terms involved.

Read carefully through all the details of the loan, including the terms for its repayment, before signing any payday loan contract.

Grace Chen
Grace Chen - Writer & Editor
A graduate of the Haas School of Business, University of California, which is one of the top three (3) business schools in the U.S., Grace Chen has 10 years of experience in this field and have been delivering stellar business content through her written word. She’s the chief editor of Communicate Better and has written and edited thousands of content published in various online and printed media, including the NYSE-sponsored research studies and MEC Global. Connect with Grace on LinkedIn, https://www.linkedin.com/in/grace-chen-9254ab8/