How Do Repayments Work For Payday Loans?

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Payday loans are often paid on your next pay date from work, which is the last working day of the month. The idea is that you receive the loan in one lump sum to provide immediate relief for urgent financial needs. However, today, you may have the option to repay over 3, 6 or 12 months, known as instalment loans, to give you added flexibility.

Proper Finance explains how the repayments work for payday loans so that you know what to expect.


Key Points:

  • Payday loans are typically repaid on the borrower’s next pay date, often the last working day of the month
  • Lenders use SMS and email notifications to keep borrowers informed in the lead-up to the repayment date
  • Repayments are facilitated through continuous payment authority (CPA) enabling automatic withdrawals on the scheduled date and eliminating the need for manual repayments


Select Your Repayment Date

Choosing a repayment date is a crucial step in the payday loan process. Most borrowers opt for their pay date, typically the last working day of the month. Others may choose a specific day, such as the 25th, or align the repayment with a four-weekly cycle.

Some individuals even request their loan to be collected the day after their pay date to avoid potential missed payments, ensuring sufficient funds are available in their account.


You Receive SMS and Emails On The Run Up To Collection

As your repayment date approaches, payday loan lenders typically keep you informed through SMS and email notifications. These reminders serve as a helpful prompt, ensuring that you’re aware of the upcoming collection.

This reminder allows you to make necessary arrangements to ensure funds are available in your account on the scheduled repayment date.


If Payment Fails, You Have 48 Hours Without Any Charges

In the event you fail to make a payment, borrowers usually have a 48-hour grace period without incurring any charges. This provides a short window for borrowers to address any issues, such as insufficient funds, and find a solution before additional fees are applied.



Repayment is Taken Using Continuous Payment Authority

Payday loans use Continuous Payment Authority (CPA) for repayment. During the application process, your card is tokenized to ensure it works.

As a validation step, a nominal amount, typically 10p, is withdrawn and then promptly refunded. This process verifies that your payment method is valid, enabling automatic withdrawals on the scheduled date.

The use of CPA provides a convenient and automated way to repay your loan and removes the need for you to make manual repayments on the phone or by visiting the bank, since it is all taken care of automatically by the lender and money simply leaves your account for repayment on payday.

If you wish to cancel your continuous payment authority, you can read about it here.


Can You Repay Your Loan Early?

Yes, many payday loan providers allow borrowers to repay their loans early. Doing so can offer financial benefits, such as reduced interest payments. Early repayment also demonstrates financial responsibility and may positively impact your relationship with the lender.

If you are considering early repayment, check with your specific lender for any terms or conditions associated with repaying early.


What Happens if You Cannot Repay Your Loan?

  • Communication from your lender
  • Late fees
  • Negative impact on your credit score
  • Referral to debt collection agencies
  • Legal action