Payday Loan Consolidation: What Is It and How works

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Consolidation of Payday Loans: What is It Is and How It works
The consolidation of high interest payday loans into one personal loan could help reduce the burden of debt.
by Jackie Veling, Lead Writer Buy now, pay later loans and debt consolidation loans for personal loans Jackie Veling writes about private loans for NerdWallet. Her work has been featured on The Associated Press, MarketWatch, MSN, Nasdaq.com and Yahoo Finance. Prior to this, she was the manager of a writing and editing freelance company, in which she collaborated with a range of clients such as U.S. Bank and Under Armour. She graduated from Indiana University with a bachelor's degree in journalism.





Mar 31, 2022


Edited by Kim Lowe Lead Assigning Editor Consumer lending Kim Lowe leads the personal loans editorial team. Kim Lowe joined NerdWallet after 15 years in charge of the content on MSN.com, including food, health, and travel. Her first job was as a writer for magazines covering mortgages, supermarket and restaurant industries. Kim received an undergraduate degree in journalism at the University of Iowa and a Master of Business Administration from the University of Washington.







Many or all of the items featured on this page are from our partners who pay us. This influences which products we feature and the location and manner in which the product is featured on the page. But, it doesn't influence our evaluations. Our opinions are entirely our own. Here's a list of and .



Payday loans are expensive, high-interest loans that have short payment terms that are difficult to repay in time. Borrowers unable to make payments may opt to roll over their loan at a cost. With enough rollovers, this could mean owing more than the original loan amount.
If you're having trouble managing several payday loan payments, payday loan consolidation may be a solution to think about.
What is payday loan consolidation?
Payday loan consolidation is the process of combining multiple previous payday loans under one new personal loan that you repay in monthly installments with an interest rate that is lower.
By combining payday loans with a lower-interest personal loan it is possible to have a an extended repayment time and smaller monthly payments that are simpler to manage. Furthermore, just one loan payment can be less stressful and can help you stick to your debt payoff plan.
What is the process for payday loan consolidation work?
If you'd like to combine payday loans, you'll need to get a personal loan from a credit union, online lender or bank.
Once approved for a personal loan You'll be given a lump sum which you can use to pay off the payday lenders. You'll then make monthly payments for your new personal loan until that loan is paid in full.
When is payday loan consolidation a good idea?
If you are able to get a personal loan with a lower rate than the payday debts and can afford the monthly payments, payday loan consolidation is generally a good idea.
typically have fees that equate to extraordinarily excessive annual percent ratesgenerally at around 400% which is why experts in finance think they're the most dangerous type of debt for a lot of borrowers.
Though personal loans are also prone to very high APRs, they don't exceed 36%, which is an enormous distinction in comparison to triple-digit rate. Consumer advocates think 36% is the most expensive APR for an affordable loan.
Personal loans also have more forgiving repayment terms. Contrary to payday loans, which usually have due dates every two weeks however, loans for personal use are paid back in loans are paid off in monthly installments and have terms ranging from two and seven years. Although this could result in a longer loan but it also offers a clearer path out of debt as installments are small and fixed which means they will not alter over the duration of the loan.
For instance, for an individual $1,000 loan at 20.5% APR with a repayment period of three years, you'll make monthly installments of $37.42. The loan is expected to cost around $347 total in interest.
How do you consolidate payday loans
1. Add to all of your payday loan balances
The first step in consolidating payday loans is to add the current balances of each payday loan debt. Loan amounts for personal loans vary, but usually start at $1,000, meaning you'll need at minimum $1,000 in payday debt to be eligible.
2. Find the most suitable loan
Once you have figured out the amount you'll need to repay your debts, look around and look at loan options with different lenders.
Personal loans are available through banks, credit unions as well as certain banks. Credit institutions and online lenders could be more favorable to applicants with short or no credit history or bad ratings on their credit (below the 630 mark FICO).
>> COMPARE:
3. Pre-qualify
One of the most effective ways to compare loan offers is to go through a short process that lets you see the loan amount and the rate you may qualify for without affecting your credit score. Not all lenders offer pre-qualification, but most online lenders do.
You can get pre-qualified using NerdWallet to check your rate with online lenders.
See if you pre-qualify for a personal loan without impacting your credit score
Answer a few simple questions to receive an estimate of your personal rate from a variety of lenders.


Loan amount
on NerdWallet








4. Make an application for the loan and receive funds
If you've decided on a lender, it's time to fill out an application. It involves the submission of an application generally online, along with personal details like the Social Security number, address and contact information. Additionally, you'll need to provide documentation, including proof of identity, employment and income.
If your request is approved then you'll sign an agreement to sign the loan agreement and receive funds usually within a week, although some lenders fund the day after you're accepted.
5. Make payments to lenders and start the process of repaying your personal loan
When you have enough money take it to each payday lender to pay off any individual loans. This step is most crucial; if you don't do it, and then spend the money in other ways, you could end up more in debt.
When your debts are paid off, . Missed payments can mean an extra fee for late payments, and payments that are 30 or more days past due could be reported to the credit bureaus, which could affect credit scores.
Lender



Minimum credit score



Beginning loan amount



APR range



The ratings of NerdWallet are based on the opinions of our team of editors. The scoring formula takes into account factors we consider to be consumer-friendly, including the impact on credit score rates and fees, the customer experience and ethical lending practices.

on the website of Upgrade.






560 .


$1,000.


8.49% - 35.97% .


NerdWallet's ratings are determined by our editorial team. The scoring formula is based on aspects we believe are consumer-friendly, including impact to credit score, fees and rates as well as the customer's experience and responsible lending practices.

on the Upstart website.






None.


$1,000.


6.50% - 35.99% .


NerdWallet's ratings are evaluated by the editorial staff. The scoring formula is based on the factors we believe to be beneficial to consumers, including the impact on credit score, rates and fees as well as the customer's experience and responsible lending practices.

on the Universal Credit website.






560 .


$1,000.


11.69% - 35.93% .


NerdWallet's ratings are determined by our editorial team. The scoring formula considers aspects we consider to be a good choice for consumers, such as the impact on credit scores, rates and fees, customer experience and ethical lending practices.

on the OneMain Financial's site






None.


$1,500.


18.00% - 35.99%


The ratings of NerdWallet are based on the opinions of the editorial staff. The scoring formula considers the factors we believe to be a good choice for consumers, such as impact to credit score, rates and fees customers' experience, and ethical lending practices.

on NerdWallet's secure site





520 .


$1,200.


12.96% - 29.99% .


NerdWallet's ratings are determined by our team of editors. The scoring formula takes into account factors we consider to be consumer-friendly, including the impact on credit score rate and fees, customer experience and responsible lending practices.

on the LendingPoint website.






600 .


$2,000.


7.99% - 35.99% .


The ratings of NerdWallet are based on the opinions of our editorial team. The scoring formula is based on the factors we believe to be consumer-friendly, including impact to credit score fees and rates customers' experience, and ethical lending practices.

on the Avant's website






550 .


$2,000.


9.95% - 35.95% .


The NerdWallet ratings are decided by our team of editors. The scoring formula takes into account factors we consider to be consumer-friendly, including the impact on credit scores rate and fees, customer service and responsible lending practices.

on NerdWallet's secure site





None.


$300.


20.05% - 35.99% .








Solutions for payday loan consolidation
If you're not looking to consolidate payday loans, or aren't approved for a personal loan, consider these other options for getting out of payday debt.
Non-profit organizations provide free credit counseling to people who are struggling with debt. Though not all counselors may be in a position to negotiate with payday lenders directly but they will be able to look at your financial situation in general and determine the best option for addressing the payday debt.
Close family and friends can be a good resource in the event that they're willing to offer your need for cash in the emergency to repay your payday loans. Be sure to draft an loan agreement to avoid doubts about when and when you'll be able to repay them.
Ask about extended repayment: Some lenders might offer a longer repayment plan that allows you to make smaller payments over a longer time. This plan could be subject to an additional cost, and terms can vary according to the state and the lender.

Payday loan alternatives if you need money fast
One way to avoid having to take a payday loan in the future is to create an emergency fund , which is money set aside to pay for unexpected expenses. Even a small emergency fund of $500 can keep you out of payday loan debt.
The process of building an emergency fund takes time, though, so when you require cash in a hurry alternative, these options aren't as expensive as payday loans and don't require an excellent credit score.
: PALs allow federal credit union members to borrow small amounts of money with a lower cost and longer term as compared to payday loans. You'll need to become a member of the credit union before you can apply.
Mobile apps such as and let users access some of their pay in advance, usually at a cost of a small amount, which can help cover an unexpected expense.
Local community groups: A lot of nonprofits and religious organizations offer cash-flow assistance for emergencies like utilities, groceries or rent. See to learn what's available in your state.
: "Buy now, pay later" apps, for example, offer Pay-in-four plans that are free of charges. These apps could cover a necessary purchase you can't afford upfront, but beware of overspending.
Small-dollar loans: Certain credit unions and banks provide small-dollar loans with lower interest prices that payday loans. If you have a positive relationship with your credit union or bank, you may be more likely to receive acceptance.



About the author: Jackie Veling covers personal loans for NerdWallet.







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