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The term payday loan is derived from the typical pay period associated with this type of loan. Unlike traditional payday loans, which have a repayment period of months or years, a payday loan is usually repaid in full within a couple of weeks. Most payday lenders stipulate the loan must be repaid on the borrower's next payday. In fact, many lenders will seek authorization from the borrower and withdraw the necessary funds from his bank account when he receives his next paycheck.
Although the process of automatically withdrawing the funds on the borrower's next payday is quite common, it is rare that a lender will require repayment on the next payday when it occurs less than seven days after the loan application is approved. However, the funds will generally be withdrawn automatically on the second payday after the loan is approved.
|Jennifer Mathes, Ph.D.|