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Last Updated on February 22nd, 2024 at 01:52 pm

The average payday loan is paid back over 2 to 4 weeks which is until the customer’s next payday from work. When a customer takes out a payday loan, it is usually to pay for an emergency expense and because they need to pay it off immediately and cannot wait until their next pay date from work, which is usually at the end of the month.

So if a customer takes out a loan on the 5th of the month, they can receive the funds upfront to pay off their pressing bill or emergency expense and then the loan is repaid in full on their next pay date from work which could be the 30th of the month, making the entire loan around 25 days.

 

Key Points

  • A payday loan is usually repaid in 2 to 4 weeks of its initial date
  • A payday loan is not a long term loan because the interest rate would add up and make it very costly
  • Longer term loans are considered to be short term, installment or personal loans and come with different rates
  • If you cannot repay your loan, you may be charged a late fee (default charge), added interest and it could negatively impact your credit score
  • There are options to extend your loan known as rollovers or renewing a loan – but note that this will be more expensive

 

 

Does The Duration Of The Payday Loan Affect How Much You Are Charged?

Yes, a payday loan is charged based on a daily interest rate, so for every day that you have the loan open, you are charged that number of days of interest. For instance, if the daily interest is 1% and your loan is open for 18 days, you will be charged 18% interest.

Other things that impact how much you are charged may include your credit score, the amount that you have requested to borrow, your history with the lender, your income, residential status, employment status and overall how these factors influence the level of risk you are as a customer.

 

Can You Borrow a Payday Loan For 3 Months or Longer?

Whilst some payday loans extend for as long as 3 months, this can be an expensive way to borrow. Payday loans are typically used for short-term purposes and emergencies and not for long term use. With the APR at around 200% to 600% for each payday loan, this can be very costly if you borrow over a long period of time.

If you are looking to borrow for 3 months or longer, you may wish to look at other products that are better suited for longer-term use, such as personal loans or installment loans which enable you spread repayment over time in equal monthly payments and can be used for several months or years. Additionally, if you find that you are in a position to repay your loan early, you may do so, and you will save money on the overall interest.

 

How is The Repayment Collected From My Bank Account?

When you complete the loan application and it is approved and funded, your debit card is electronically verified with the payday lender. This allows them to automatically collect from your account on the requested repayment dates, using a process called ACH authorization.

This is very convenient for the borrower because it means that the exact amount is collected automatically on the scheduled date, so there is no need to call up, make a payment or a bank transfer or go to the bank to repay your loan. In some payday stores across America, this is a more manual process, since some people do not have bank accounts, so paying in person is a requirement. Otherwise, it is handled electronically and you will receive email and SMS reminders on the days leading up to your repayments so that there are no surprises.

 

Can You Repay a Payday Loan Early?

Yes, you can absolutely repay a payday loan early. You simply need to message the lender, call them or log into the account section on their website and you can clear the debt. Based on the principle of daily interest, it will therefore be cheaper to pay off the entire loan early because less interest would have accumulated overall.

It is important to note that there is a cooling period of around 24-48 hours where you can hand back the loan amount and not be charged any fees. This is your legal right in case you do not wish to proceed with the loan. However, some lenders may charge an admin fee for covering the cost of the checks and funding process.

 

Can You Extend a Payday Loan Repayment?

Yes, you can ask the lender to extend your payday loan repayment if you would like a little longer to pay it off. Some people will be trying to re-organise their finances and having an extra few days or weeks could give them a bit of breathing space. These are also known as rollovers or extensions, where you hypothetically ‘roll over’ the loans interest. Just note that this can be very costly if you start to extend your loan for an extra 2, 4 or 6 weeks, because the interest will really start to add up.

You can also renew your loan once you have repaid, if you would like to borrow $300 again, or similar. However, note that the rates and terms may be different – because some factors may be different this time around including the loan duration, your credit score and risk appetite of the lender.

 

What Happens if You Cannot Repay Your Payday Loan?

It is always important to know what happens if you cannot repay your payday loan. There are a number of implications including:

  • Late fee if not paid in the first 24 hours – this could be $35 on average
  • The information is sent to a credit bureau
  • Your credit score could fall and make it harder to get approved for other loans and credit
  • Your loan will continue to generate daily interest until it is paid off
  • The overall cost of your loan will increase

 

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Daniel Tannenbaum B.A, M.A

Daniel Tannenbaum is the founder of Pheabs.com and has worked in the payday loan and consumer credit space for over 15 years across the USA. He previously gained a bachelor's degree and master's degree in Business Management. In the last 15 years, he has seen the good and the bad of the industry and is passionate about making his information as clear and easy-to-read as possible. You can enjoy his posts sharing his insights, money advice and asking key questions about the payday loans application process from start to finish. You can follow him on Linkedin.