Consolidation of Payday Loans: What is It Is and How It Does It

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Consolidation of Payday Loans: What is It Is and How It Does It
The consolidation of high interest payday loans into one personal loan could help reduce the burden of debt.
by Jackie Veling, Lead Writer Pay later, buy now loans as well as debt consolidation loans for personal loans Jackie Veling covers the personal loans on behalf of 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 wide range of clients, including U.S. Bank and Under Armour. Her graduation from Indiana University with a bachelor's degree in journalism.





Mar 31 2022


Edited by Kim Lowe Lead Assigning Editor The consumer lending Kim Lowe leads the personal loans editorial team. The editor came to NerdWallet following 15 years of of managing the content on MSN.com, including food, health and travel. Her first job was as a writer for publications covering mortgages as well as the restaurant, supermarket and mortgage industries. Kim earned an undergraduate degree in journalism from The University of Iowa and a Master of Business Administration from the University of Washington.







A majority of the products featured here are from our partners who compensate us. This affects the products we review and the location and manner in which the product appears on the page. But, it doesn't influence our evaluations. Our opinions are entirely our own. Here's a list and .



Payday loans are expensive, high-interest loans that have short payment times which can be challenging to pay back on time. Borrowers unable to make payments may opt to roll over their loan for a fee. If enough rollovers are made the loan could be owed more than the original loan amount.
If you're struggling with managing several payday loan payments, payday loan consolidation may be an option to consider.
What exactly is payday loan consolidation?
Payday loan consolidation occurs the process of combining multiple existing payday loans under one new personal loan that you repay in monthly installments with lower interest rates.
By combining payday loans with a lower-interest personal loan it is possible to have a an extended repayment time and small monthly installments that are easy to manage. Additionally, only having one loan payment may feel less overwhelming and help you stick to your debt payoff plan.
What is the process for payday loan consolidation work?
If you'd like to consolidate payday loans, you'll need to apply for personal loan from an online credit union, credit union lender, or bank.
Once granted a personal loan you'll receive an amount in one lump which you can use to pay off your payday lenders. Then, you'll make monthly payments on your personal loan until the loan is paid in full.
What is the best time to consider payday loan consolidation a good idea?
As long as you can qualify for a personal loan with a lower interest rate than your payday debts and can afford the monthly payments, payday loan consolidation is generally a good option.
The majority of fees amount to extraordinarily large annual ratesusually around 400% -- which is why experts in finance think they're an extremely risky type of debt for the majority of people who are borrowers.
Although personal loans may also come with high APRs, they don't exceed 36%, which is an enormous distinction between triple-digit interest rates. The majority of consumers believe that 36% is the most expensive APR for a reasonable loan.
Personal loans also come with more flexible repayment terms. Unlike payday loans, which usually are due every two weeks, the personal loans are paid back in monthly installments with durations ranging from two up to 7 years. Although this could result in a longer loan, it can offer an easier way out of debt as installments are small and fixed and will not change throughout the term length of loan.
For example, if you take one $1,000 personal loan at 20.5% APR with an interest rate of 3 years, you'll make monthly installments of $37.42. The loan will cost about $347 total in interest.
How to consolidate payday loans
1. Add up all of your payday loan balances
Your first step in consolidating payday loans is to add up your current balances for each payday loan debt. Loan amounts for personal loans vary, but typically start at $1,000, meaning you'll need at minimum $1,000 of payday debt in order to qualify.
2. Look around for the top loan
Once you have figured out the amount you'll need to repay your debts, you can shop around and look at loan options with different lenders.
Personal loans are available at the credit unions and online lenders and some banks. Credit institutions and online lenders could prefer applicants with a short or no credit history, or poor credit scores (below the 630 mark FICO).
>> COMPARE:
3. Pre-qualify
One of the best methods to compare loan offers is to go through a short procedure that allows you to see what loan amount and the rate you might be eligible for, without harming your credit score. Not all lenders provide pre-qualification, however most lenders online do.
You can pre-qualify with NerdWallet to see if you are eligible with online lenders.
See if you pre-qualify for a personal loan - without affecting your credit score
Simply answer a few questions to receive customized rate estimates from several lenders.


Loan amount
on NerdWallet








4. Apply for the loan and then receive the loan
After you've selected the lender you want to work with, it's time to apply. This involves the submission of an application usually online, with personal information like you Social Security number, address and contact details. Additionally, you'll need to provide documents that prove your identity, employment and income.
If your application is accepted and you're approved, you'll sign your loan agreement and receive the funds usually within a week, although some lenders will fund you the day after you're accepted.
5. Start paying off your lenders and beginning repayment on your personal loan
If you've got the cash take it to each payday lender and pay off any individual loans. This is the most importantone; if don't do it, and then use the money for other purposes you may end up even deeper in debt.
Once your debts are paid off, . Insufficient payments could result in an extra fee for late payments, and payments that are 30 or more days late can be reported to credit bureaus, affecting the credit rating.
Lender



Minimum credit score



The amount of the initial loan amount



APR range



The NerdWallet ratings are decided by our editorial team. The scoring formula is based on factors we consider to be consumer-friendly, including impact to credit score, rates and fees, customer experience and responsible lending practices.

on the website of Upgrade.






560 .


$1,000.


8.49% - 35.97% .


NerdWallet's ratings are determined by the editorial staff. The scoring formula considers the factors we believe to be friendly to consumers, such as the impact on credit score, rates and fees customers' experience, and ethical lending practices.

On the website of Upstart.






None.


$1,000.


6.50% - 35.99% .


The ratings of NerdWallet are based on the opinions of our editorial team. The scoring formula considers the factors we believe to be beneficial to consumers, including impact to credit score, rates and fees as well as the customer's experience and responsible lending practices.

on the website of Universal Credit.






560 .


$1,000.


11.69% - 35.93% .


NerdWallet's ratings are evaluated by our editorial team. The scoring formula takes into account aspects we consider to be a good choice for consumers, such as the impact on credit score fees and rates customers' experience, and ethical lending practices.

on the OneMain Financial website.






None.


$1,500.


18.00% - 35.99%


NerdWallet's ratings are determined by our team of editors. The scoring formula considers aspects we consider to be consumer-friendly, including 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% .


The ratings of NerdWallet are based on the opinions of our team of editors. The scoring formula is based on the factors we believe to be beneficial to consumers, including the impact on credit score rate and fees, customer service 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 team of editors. The scoring formula considers factors we consider to be consumer-friendly, including impact to credit score fees and rates as well as the customer's experience and responsible lending practices.

on the Avant's website






550 .


$2,000.


9.95% - 35.95% .


The NerdWallet ratings are decided by the editorial staff. The scoring formula considers aspects we consider to be consumer-friendly, including impact to credit score rate and fees, customer experience and ethical lending practices.

on NerdWallet's secure site





None.


$300.


20.05% - 35.99% .








Other options for payday loan consolidation
If you don't want to combine payday loans, or aren't eligible for a personal loan look into these other options for getting out of payday debt.
Non-profit organizations provide free credit counseling to people who struggle with debt. While not all counselors might be in a position to negotiate with payday lenders directly, they can look at your financial situation in general and assess the best choices for addressing the payday debt.
Family and friends could be a resource in the event that they're willing to offer you emergency cash to repay your payday loans. Be sure to draft an agreement for the loan agreement to avoid any confusion about when and how you'll pay them back.
Consider extended repayment plans: Some lenders may offer an extended repayment plan, which lets you make smaller payments over a longer period of time. This plan could be subject to an additional cost and the terms and conditions can differ according to the state and the lender.

Payday loan alternatives if you need cash fast
One method to avoid needing to take out the payday loan in the future is to build an , which is money set aside to cover unexpected expenses. Even a small emergency fund of $500 can help you stay out of payday loans.
Building an emergency fund takes some time, however, so if you need immediate cash These options are less predatory than payday loans and don't require excellent credit scores.
: PALs allow federal credit union members to borrow smaller amounts of money at a reduced cost and longer term in comparison in comparison to payday loans. You'll need to become an active members of your credit union in order to apply.
Mobile apps such as let users access a portion of their paycheck in advance, typically for a small fee that could help pay for an unexpected expense.
Local community groups: A lot of nonprofits and religious organizations offer emergency funds for essential expenses like groceries, utility bills, or rent. Check out the available funds in your state.
: "Buy now, pay later" apps, for example, offer four-pay-in-four-payment plans that have no interest. These apps could help you pay for an essential purchase you aren't able to pay for upfront, but beware of overspending.
Small-dollar loans Some credit unions and banks provide small-dollar loans at lower rates that payday loans. If you have a good relationship with your bank or credit union, you may have a higher chance of being approved.



The author's bio: Jackie Veling covers personal loans for NerdWallet.







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