When you sign up for a payday loan you will agree on when and how you will make repayments each month. Typically you will set up an automatic payment where the money leaves your account by ACH or Automated Clearing House Authorization.
ACH is an agreement you make between your bank and the lender to allow them to withdraw the amount of money that you owe them each month automatically. It will take the money from your credit union, app or prepaid account and will go towards paying off your balance.
If you don’t want ACH or automatic repayments each month then you can also arrange to call each month and make the payments. The danger is that you could forget to make a payment which could damage your credit score. It is always worth talking to your lender about alternative solutions before you set up your repayments.
How Do Loan Repayments Work?
Most loan repayments work in a very similar way but could differ depending on what type of loan you take out. If you take out an instalment loan, the repayments might be slightly different compared to if you take out a regular payday loan.
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As soon as you are accepted for a payday loan, you will be shown the terms and conditions of the loan and the repayment schedule. There is nothing to do in person – all you’ll need is your phone or access to an email account to get the loan approved. Once you set up ACH authorization, you will automatically be making payments every month on the date that you specify.
You can think of ACH or authorization as a direct debit to pay off your payday loan.
If you do instalment loans, it’s slightly different. The money you borrow will come into your account in instalments, but you’ll also make repayments in instalments.
What is ACH Authorization?
At its simplest form ACH authorization is an approval that you give to your bank to allow them to transfer money each month.
ACH falls into two separate categories.
- Direct payments,
- Direct deposits.
An example of a direct deposit could be paying expenses, paying for government benefits, taxes, payroll or interest payments on loans.
An example of a direct payment could be using your money to make payments for a loan or electronically transferring money to an individual or organization.
ACH payments are beneficial because they are automatic and it means that you won’t miss a repayment. They’re also cheaper than writing a check or doing a bank transfer.
Can I Stop Automatic Payments On A Payday Loan?
Yes. You can stop automatic payments if you don’t think you’ll have enough money in your account to pay it this month, you can cancel your ACH payment. If you want to do this you’ll need to cancel it 3 days before your next scheduled payment.
And to make sure that the ACH payment is actually cancelled, you’ll want to leave at least 3 days before the date it is to be repaid. It also depends on which bank you use and so it’s worth checking with your bank before doing anything. At some organizations, you can cancel by phone and for some, you can do it online. In others, you have to submit a physical form to stop this.
If you want to cancel recurring payments and not just a one-off payment, you first need to let your lender know. You’ll need to make other arrangements to pay off the loan whether in full or in instalments. You basically need to tell them that you’re revoking access to your account.
After you’ve let the lender know, you’ll need to let your bank know. You can tell them that you’ve revoked ACH authorization and they might need another step to complete this.
How To Make Sure You Can Repay A Payday Loan?
No matter which repayment method you choose, you always need to make sure you have money in your account on the date you make the repayments.
Many people choose the beginning of the month right after payday to make their repayments. If your repayment is on the 2nd of every month then on the 1st you need to make sure that enough money sits in your account to make the repayment.
To keep track of this, some people use a budgeting app or a reminder list and others have a calendar invitation that pings up on the date. You don’t want to miss a direct debit because it can damage your credit history.