Most of us have heard the term “Payday Loan” before, and many of us already have at least a vague idea of what it means.  But unless you work in the industry, or have already taken out a Payday Loan before, you may be a little unclear on the actual details of what defines a loan as a “Payday” loan.  Let’s take a look….

Probably the most important point that defines a loan as a “Payday” loan would be that…. “A Payday loan is a short term loan, usually 1 month or less, which is set to be paid back in full on the customer’s next payday”.   Sounds simple enough, but let’s break that down a little further and tackle some possible FAQ’s.

“A Payday loan is a short term loan”

Q: Does that mean a “Payday” loan can ONLY be a short-term loan?  Can’t you set up a longer loan that pays off on the customer’s payday, and still consider that a “Payday” loan?

A: No.  “Payday Loan” is a term reserved only for short-term loans.  I do not believe there to be an “official” definition limiting Payday Loans to “x” number of days, but they are generally one month or (most commonly) less.

“which is set to be paid back in full on the customer’s next payday”

Q: So the loan MUST be paid back on the customer’s next payday to be considered a “Payday” loan?

A: No it is not a requirement to be considered a “Payday” loan.  Sometimes another date will be chosen as the due date for a “Payday” loan.  It’s just that the majority of Payday Loans will be paid back on the customer’s next payday.  The main reason being, that the lender wants to set a date on or near a payday to increase the chances that the borrower will have the funds to pay the loan back.  Also, it is in the borrower’s best interest to pay the loan back as soon as possible, so their next payday is usually a popular choice for the agreed upon re-payment date.    You could also use the term(s) “Cash Advance” loan, or “Payday Advance” loan for these loans.

Hopefully this explains some of the general requirements for a loan to be defined as a “Payday” loan.  As always, feel free to let us know if you have any questions as well!