How to Pay Off a Payday Loan Quickly
How to Pay Off a Payday Loan Quickly
How to Pay Off a Payday Loan QuicklyUnlike a standard loan, payday loans aren't often dependent on the length of the lending period. Instead there is a one-off charge attributed to it and an agreement that the full amount will be re-paid when you next receive your salary. Therefore paying it off early isn't necessarily an effective way of lowering costs. However, there may still be some who wish to do so, as a consequence here's a quick guide to payday loans and how you can complete the payment procedure.
To elaborate on the earlier point, a payday loan is a short-term cash advance purposely designed to be settled when you next receive payment from your employers. As a consequence it doesn't work in the same way that longer term loan would do. The most obvious indication of this is the interest rate attached to it (known as APR).
APR is the Annual Percentage Rate for a loan. If you were to go to a bank this might typically be around 8.9% for instance. However, when it comes to a payday loan the numbers are slightly skewed by their reduced loan period. Therefore it is not uncommon to see an APR of over 2000% for many payday loans.
This doesn't however mean that you'll have to pay back 2000 pounds for every pound borrowed. Equally, you won't be paying 5.5% each day you're indebted to your lenders. More often than not the actual rate of interest will be nearer 25% of the total amount borrowed. By no means is this a low figure; however it is far more palatable than the headline figure.
So if you were to get a payday loan for 400 pounds there's a good chance that you'll have to pay back 500 - with 100 pounds representing your interest. This rate will vary from lender to lender, but this should just give you an idea of how the system works.
Often any other charges will be integrated within this APR, so you won't get stung for additional costs later. This might include a same-day bank transfer for instance. Therefore you will be given a clear indication of exactly how much you'll have to pay back before accepting the conditions, with no hidden surprises when your agreement expires.
As mentioned previously, the length of the loan is often restricted to a month. This is purely because most applicants should have a pay date during this period - whether they're paid monthly or weekly. The interest, as we've just covered, will often be set out prior to the commencement of the loan. This figure will remain the same throughout, whether you pay on time or earlier. The only occasion that the total loan amount would markedly alter is if you defaulted or applied for an extension.
If you do want to pay off your payday loan a little earlier than expected then you should contact the provider to enquire as to whether this is possible and the procedures involved. More often than not there won't be a financial benefit in doing this as the interest usually won't be calculated daily - as it might be in a traditional loan or bank account. You may even find that there is a fee for paying early. If this is the case you might need to re-evaluate whether it is entirely worth paying early.
There are one or two loan payday loan providers that do operate a daily interest, but in the main these are few and far between. If this is the case with you, then it is well worth getting in contact to see if you can save a few pennies by writing the debt off early. Otherwise you might be better just holding tight and waiting for the money to be taken from your account on the appointed date.