Settling a Payday Loan

Payday loan period...

A payday loan is a short term loan, usually for two weeks and definitely for no longer than one month, with a high, fixed rate of interest. For example, a person might borrow £100 for two weeks and be required to repay £130 at the end of the two week period. For a loan like this the annual percentage rate (APR) works out to be 780 percent. Because of this high rate of interest most borrowers would, ideally, like to repay the loan at the earliest possible opportunity. However, because payday loans are short term loans, the lenders normally charge a premium for early repayment, making early redemption of a payday loan an unrealistic option in most cases.

Lenders prefer the opposite scenario...

In fact, many lenders prefer the opposite scenario, where the borrower is unable to repay both the loan and the interest in full on the due date. In these cases, borrowers are often encouraged to repay only the interest for the recent period and to 'roll over' the loan to the next payday, thereby becoming liable to pay an additional amount of interest.

Payday Loan Extended Repayment

Legislation that forces lenders to offer extended repayment plans...

In the US, the large number of borrowers who have ended up in a spiral of debt as a result of being unable to repay payday loans has caused a great deal of discussion and controversy regarding the activities of payday loan lenders. As a result, some states have introduced legislation that forces lenders to offer extended repayment plans to borrowers, at no additional cost to the borrower. Debt counsellors and advice organisations in the UK have also been calling for similar controls to be placed on payday loan lenders.

Refinancing a Payday Loan

Several options for refinancing a payday loan ...

People with average to good credit history have several options when it comes to refinancing a payday loan. The first place to start is an approach to the bank where you hold your current account. An authorised overdraft or a personal loan will cost considerably less than a payday loan and will almost certainly be available to you unless your personal finances are in a particularly dire state. Alternatively, a number of other financial institutions offer personal loans online or by phone.

• Short term Loan
• Refinancing
• Loan Repayment

Credit Card Option

Find a credit card offering a 'balance transfer'...

Finally, consider the credit card option. Moving payday loan debt or other debt on to a credit card can be a bit of a minefield, because of the high rates of interest charged and the strict rules of use on some credit cards. However, with careful research, you may well be able to find a credit card offering a 'balance transfer' at a zero rate or low rate of interest for a fixed period.