There are various types of short term loans. All of them can be classified as either secured or unsecured. Both secured and unsecured short loans can have a repayment term of anywhere from thirty days to thirty months. Most short term loans will have a repayment term of up to two years. There are some lenders that would categorize loans with repayment terms of up to five years as short term loans but the banking or the larger financial services sector does not have such a classification. Any loan with a repayment term beyond three years is not a short term loan. This is why car loans, that can have terms of up to five years, do not qualify as short term loans.
Payday loans are a specific type of short term loans. They are unsecured short term loans but that is not the distinct factor. Payday loans are designed in a way wherein a borrower gets some urgent cash and is required to repay the loan amount with the interest accrued in thirty days. This could be twenty nine days or thirty one days. The general rule is that the repayment term will be a month. Borrowers must communicate when their next payday is and that is the date when the loan must be repaid in entirety. Payday loans are not usually available with terms of several months or up to three years. Hence, there is no installment system here. This is primarily where payday loans differ from other unsecured and secured short term loans.
The repayment term can always vary, as you would find out in quotes you receive from Flex Repay in UK. If the payday is within a fortnight from the date of the loan approval and subsequent disbursal, then one can get a repayment term longer than thirty days. If the next payday is around twenty days or twenty five days from the date of loan approval and subsequent disbursal, then a borrower gets less than thirty days. The whole premise of payday loans and by the virtue of its definition requires borrowers to pay on the immediate pay date following the approval and disbursal of the loan.
In the jargon used by the lending industry, payday loans are not amortized. In simpler words, payday loans do not have equated installments. These can also be referred to as easy installments. Since there is no installment system here, there is no practice of prepayment. Any kind of prepayment is only rational when there are impending payments and a borrower chooses to pay in advance. In case of payday loans, the repayment term is so short that prepayment does not make sense for the borrower. A borrower would anyway need the thirty days or would have to wait for the pay date when the loan amount can be repaid, along with the interest. Even if a borrower has managed to get some money from any secondary or tertiary source, there is no clause in typical agreements that can facilitate prepayment. The loan amount and the interest will be debited from the bank account only when the next salary or wage gets credited into the bank account.
The only time when prepayment is possible or applicable in case of payday loans is if the repayment term is longer than a month. There are lenders who offer payday loans for a period of ninety days or up to a hundred and eighty days. Some payday lenders may even offer a term of up to a year. These are rarities of course but such practices do exist. You can always look for prepayment options in such cases. It may make sense for you as a borrower to opt for prepayment if there is some respite from the accruing interest. It makes no sense to opt for prepayment when the term is thirty days as the interest accrued would be the same if you repay on the due date.
Prepayment will also apply in case borrowers ask for renewal of the repayment term. It is not uncommon for borrowers to miss the deadline or due date and they may seek renewals. If the term has been renewed for another month or a few months, then one can pay early and be done with the loan. Technically, it would not be prepayment as one is already past the original due date.