Can I Make Arrangements to Pay Off My Payday Loan Early?
Payday lenders often issue short-term loans designed to offer borrowers financial relief until an upcoming payday. In some cases, though, borrowers may become able to repay the loan before the agreed due date. Regulations requiring lenders to accept prepayment vary from state to state, and the benefits of paying off a payday loan early can vary significantly depending on state laws.
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Prepayment
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When a borrower agrees to pay off a payday loan early, according to the website for payday lender EZ Payday Cash, the arrangement is known as a prepayment. A lender's willingness to accept prepayment varies from company to company, and some local or state laws may govern whether a lender will honor a prepayment arrangement. According to the website for the lending company USA Cash Services, the state of Utah requires that payday lenders both honor prepay arrangements and offer those who prepay their payday loans a partial refund on finance fees. The financial website Loan Shack explains that most states have some laws governing how payday lenders handle prepayments, and most major lenders honor these arrangements.
Options
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Depending on the lender, payday loan customers may have a number of repayment options. The USA Cash Services website explains that customers may typically visit the payday lender's offices to prepay a loan, and some lenders offer telephone centers or web-based services that allow borrowers to prepay without leaving home. If the borrower cannot prepay the payday loan, the Loan Shack website states that many lenders allow borrowers to make regular periodic payments until the loan balance is repaid.
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Benefits
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Payday loan borrowers can gain a number of benefits by paying off their loans early. According to the finance and legal website Payday Loan Laws, many states require payday lenders to refund a portion of the borrower's finance charge if the borrower pays off the loan balance earlier than the due date. If the payday lender reports the loans to credit reporting bureaus, prepayment may help improve the borrower's credit score. In addition, many states forbid payday lenders from charging a prepayment fee, so residents of states with this regulation may prepay their loans without incurring additional charges. Finally, prepaying a loan clears the balance and can offer borrowers some personal, non-tangible satisfaction in repaying the balance early.
Considerations
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Though many states forbid payday lenders from charging prepayment penalties, not all states offer such protection, according to the Payday Loan Laws site. For this reason, payday loan customers should exercise caution when prepaying loans and verify with the lender that no penalties will apply. In addition, the Loan Shack site explains that not all states require payday lenders to offer partial refunds on finance charges in the event of a prepayment. Prepayment in the state of Idaho, for example, does not entitle the borrower to any form of refund or discount.
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References
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