Are Payday Loans Installment or Revolving?

Last updated by Zaving Editorial Team, on January 18th, 2024

Understand the structure of payday loans, whether they're installment or revolving, with zaving's guidance.

Are you looking for information on whether payday loans are installment or revolving? Learn more here. If you need some urgent cash to get you through a tight spot, you can turn to zaving to help you explore your options. Our online service makes applying for a loan quick, easy, and hassle-free. If your loan is approved, cash can land in your bank account straight away – it's as simple as that! Start the application process right here today with zaving.

What are payday loans and how do they work?

“Payday loans are short-term loans designed to provide quick access to small amounts of money, typically less than $1,000, to cover immediate expenses until the borrower's next paycheck. These loans work by allowing individuals to borrow a sum that they must repay, along with fees and interest, upon receiving their next paycheck.

To obtain a payday loan, individuals usually submit an application to a lender, providing personal information, proof of income or employment, and a bank account. Upon approval, the borrower receives the loan amount, often through direct deposit or a check.

Repayment for payday loans is typically expected on the borrower's next payday. However, some lenders may allow for extended repayment periods or offer rollover options, though these extensions often come with additional fees and higher interest rates. It's essential to note that payday loans often carry high fees and interest rates, and failing to repay on time can lead to increased financial burdens and potential debt cycles.”

Are there payday loans that are installment or revolving?

“Payday loans traditionally operate as short-term, lump-sum loans due on the borrower's next payday. 

However, while it's not common, some payday lenders do offer installment or revolving features:

  • Installment payday loans: Offer fixed monthly payments over several months (typically 3-6 months). However, they still come with high interest rates, ultimately increasing the overall cost of borrowing. Additionally, their availability is limited compared to traditional payday loans, making them harder to find.
  • Revolving payday loans: Offer the flexibility of a reusable line of credit with a pre-approved limit, allowing you to borrow as needed and potentially avoid multiple loans. However, high interest rates apply to the entire credit limit, even the unused portions, potentially leading to unexpected debt accumulation. Moreover, these loans are extremely rare, with only a limited number of lenders offering them, making them difficult to access.
 

It's crucial to be cautious and understand the risks involved before opting for such a loan. Important points to consider include:

  • Interest Rates: Even with installment or revolving features, payday loans still carry significantly higher interest rates than other loan options.
  • Fees: Be aware of additional fees associated with these loans, such as origination fees, late payment fees, and prepayment penalties.
    Debt Cycle: Payday loans are notorious for trapping borrowers in a cycle of debt. Carefully consider if you can afford the high cost of borrowing before taking out a loan.”

What happens if I cannot repay my payday loan?

“If you're unable to repay your payday loan, several potential consequences could follow, impacting your financial situation and creditworthiness:

  • Accumulation of additional fees and interest: Late or missed payments often result in added fees and increased interest rates, significantly elevating the total amount owed.
  • Debt collection procedures: Lenders may initiate debt collection procedures, which can involve persistent phone calls, emails, letters, or even visits from debt collectors urging repayment.
  • Adverse effect on credit score: Non-payment or late payments could negatively impact your credit score. Lenders may report delinquent accounts to credit bureaus, affecting your creditworthiness and making it harder to secure loans or credit in the future.
  • Potential legal actions: In severe cases of non-payment, lenders might take legal action, such as filing a lawsuit against you, obtaining a court judgment, or pursuing wage garnishment to reclaim the outstanding debt.
 

To mitigate these consequences, it's crucial to contact your lender immediately if repayment becomes challenging. Many lenders are willing to negotiate and may offer alternatives, such as setting up a payment plan or extending the repayment period, to help manage the debt and avoid severe repercussions. Seeking advice from financial counselors or debt relief agencies can also provide assistance in navigating these difficulties.”

More of your frequently asked questions about payday loans

Can I pay off my payday loan early?

Yes, usually, settling your payday loan before the deadline doesn't incur extra fees. Repaying early might significantly reduce the interest charges since payday loans tend to accrue interest every day. Nonetheless, it's highly advisable to directly confirm this with your lender because rules can differ among different payday loan providers. Prior to making an early payment, thoroughly review the terms specified in your loan agreement and communicate with your lender to ensure there aren’t any surprise penalties or extra fees tied to paying off your loan ahead of time.

Can payday loans be included in bankruptcy?

Yes, including payday loans in bankruptcy is an option, enabling their discharge as unsecured debts. Chapter 7 typically eliminates this debt entirely, while Chapter 13 might require a partial repayment contingent upon your income and expenses. Nevertheless, exceptions might exist, especially for loans acquired shortly before initiating bankruptcy proceedings. Seeking legal counsel is crucial to understand your unique situation and navigate the complexities of bankruptcy effectively.

Do payday loans affect my credit score?

Yes, payday loans can influence your credit score, especially if there are challenges in repaying them. If managed responsibly with timely payments, they might not immediately affect your credit score. However, late payments or defaults on these loans can substantially damage your credit rating. Lenders reporting these delinquencies to credit bureaus can have a detrimental impact, potentially lowering your credit score and limiting future credit opportunities. Ensuring prompt repayment is crucial in safeguarding your credit score against the negative implications of payday loans.

Can I get a payday loan if I am unemployed?

Obtaining a payday loan while unemployed might prove challenging because lenders often request proof of income as part of the application process. Payday lenders generally favor borrowers with a consistent income, which might encompass regular employment, social security benefits, or other verified sources of revenue. While some lenders might entertain alternative income sources or assistance, their approval criteria and loan terms may not be as advantageous. Before pursuing a payday loan without employment, it's crucial to weigh the terms, evaluate potential risks, and consider alternative financial avenues.