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Payday Loan Consolidation: What Is It and How works

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

Consolidating high-interest payday loans into one personal loan can help ease the burden of debt.

By Jackie Veling Lead Writer Buy now, pay later loans and debt consolidation private loans Jackie Veling covers private loans for NerdWallet. Her work has appeared on The Associated Press, MarketWatch, MSN, Nasdaq.com and Yahoo Finance. Prior to her work, she had an editing and writing freelance company, in which she collaborated with a variety of clients, including U.S. Bank and Under Armour. She graduated from Indiana University with a bachelor’s degree in journalism.

Mar 31, 2022

Written by Kim Lowe Lead Assigning Editor The consumer lending Kim Lowe leads the personal loans editorial team. She was hired by NerdWallet following 15 years of of managing the content on MSN.com which included food, health, and travel. Her first job was as a journalist for publications covering mortgages, supermarket and restaurant industries. Kim obtained her bachelor’s degree in journalism at The University of Iowa and a Master of Business Administration from the University of Washington.

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Payday loans are high-interest, expensive loans that have short payment times that can be difficult to repay in time. People who are unable to pay could decide to roll-over their loan at a cost. With enough rollovers it could result in owing more than the initial loan amount.

If you’re having trouble managing several payday loan payments, payday loan consolidation might be a solution to think about.

What is payday loan consolidation?

Payday loan consolidation occurs when you combine several existing payday loans under one new personal loan which you repay by monthly installments, at an interest rate that is lower.

When you combine payday loans with a lower-interest personal loan it is possible to have a an extended repayment time and smaller monthly payments that are easier to manage. In addition, having just one loan payment may make it less overwhelming and also will help you stick to your plan for debt repayment.

How does payday loan consolidation work?

If you want to consolidate payday loans, you’ll need to request an individual loan from an online credit union, credit union lender, or bank.

If you’re granted a personal loan You’ll be given an amount in one lump that you’ll use to pay off your payday lenders. Then, you’ll make monthly payments for your new personal loan until that loan is fully paid.

When is payday loan consolidation a good idea?

So long as you get a personal loan with a lower interest rate than your payday debts and can afford the monthly installments, payday loan consolidation is generally a good idea.

Most of the time, they have fees that amount to a staggeringly excessive annual percent rates -usually at around 400% which is why experts in finance consider them to be a toxic form of debt for the majority of borrowers.

While personal loans may also come with high APRs but they aren’t more than 36%, which is a significant difference between triple-digit interest rates. Consumer advocates think 36% is the most expensive APR for a reasonable loan.

Personal loans also come with more flexible repayment terms. In contrast to payday loans, which usually come due every two weeks however, 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 but it also offers the possibility of a more clear path out of debt as installments are small and fixed which means they will not change throughout the term time of the loan.

For example, if you take an individual $1,000 loan at 20.5% APR with a repayment period of three years that means you’ll pay monthly installments of $37.42. The loan is expected to cost around $347 total interest.

How do you consolidate payday loans

1. Add up the payday loan balances

The first step in consolidating payday loans is to add your current balances to all payday loan debt. Loan amounts for personal loans differ, but generally begin at around $1,000, which means you’ll require at least $1000 in payday loans to qualify.

2. Look around for the top loan

Once you know the amount you need to pay off your debts, look around and look at loan alternatives from various lenders.

Personal loans are available at banks, credit unions, and certain banks. Credit institutions and online lenders could look more favorably upon applicants with short or no credit history, or poor score on credit (below 630 FICO).

>> COMPARE:

3. Pre-qualify

One of the best methods of comparing loan offers is to go through a short process that lets you know what loan amount, rate and term you may qualify for without affecting your score on credit. Not all lenders provide pre-qualification, however most online lenders do.

You can pre-qualify through NerdWallet to check your rate with lenders online.

Check if you are pre-qualified for an individual loan and it will not affect your credit score

Simply answer a few questions to get an estimate of your personal rate from a variety of lenders.

The amount of the loan

on NerdWallet

4. Make an application for the loan and then receive the loan

Once you’ve chosen a lender, it’s time to fill out an application. It involves filling out an application, typically online, and submitting personal details like your Social Security number, address and contact information. You’ll also need to submit documentation, including proof of identity, employment and income.

If your request is approved and you’re approved, you’ll sign an agreement to sign the loan agreement and receive funds typically within one week, though some lenders fund the day after you’re accepted.

5. Start paying off your lenders and beginning the process of repaying your personal loan

When you have enough money, go to each payday lender to pay off any individual loans. This is the most importantone; if skip it and spend the money for other purposes it could leave you more in debt.

Once your debts are paid in full, . Insufficient payments could result in a late fee, and those who pay more than 30 days late can be reported to the credit bureaus, which could affect the credit rating.

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 is based on factors we consider to be consumer-friendly, including the impact on credit score rates and fees, customer experience and responsible lending practices.

on the Upgrade’s website

560 .

$1,000.

8.49% — 35.97% .

The NerdWallet ratings are decided by our editorial team. The scoring formula is based on the factors we believe to be beneficial to the consumer, including the impact on credit score, fees and rates customers’ experience, and responsible lending practices.

On the website of Upstart.

None.

$1,000.

6.50% — 35.99% .

NerdWallet’s ratings are evaluated by our team of editors. The scoring formula considers the factors we believe to be beneficial to consumers, including impact to credit score, rates and fees customers’ experience, and ethical lending practices.

on the website of Universal Credit.

560 .

$1,000.

11.69% — 35.93% .

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

on the OneMain Financial website.

None.

$1,500.

18.00% — 35.99%

The NerdWallet ratings are decided by our team of editors. The scoring formula takes into account the factors we believe to be beneficial to consumers, including the impact on credit score, rates and fees, customer experience and ethical lending practices.

on NerdWallet’s secure website

520 .

$1,200.

12.96% — 29.99% .

NerdWallet’s ratings are determined by the editorial staff. The scoring formula is based on aspects we consider to be a good choice for consumers, such as the impact on credit score rate and fees, the customer experience and ethical lending practices.

on LendingPoint’s website

600 .

$2,000.

7.99% — 35.99% .

NerdWallet’s ratings are determined by our editorial team. The scoring formula takes into account the factors we believe to be a good choice for consumers, such as the impact on credit scores, rates and fees as well as the customer’s experience and responsible lending practices.

on Avant’s website

550 .

$2,000.

9.95% — 35.95% .

NerdWallet’s ratings are determined by our editorial team. The scoring formula is based on aspects we consider to be consumer-friendly, including the impact on credit score, rates and fees, the customer experience and ethical lending practices.

on NerdWallet’s secure website

None.

$300.

20.05% — 35.99% .

Alternatives alternatives to payday loan consolidation

If you’re not looking the consolidation of payday loans, or aren’t eligible for a personal loan look into these other options for getting out of payday loan debt.

Non-profit organizations provide free credit counseling to those who struggle with debt. While not all counselors might be capable of negotiating directly with payday lenders but they will be able to look at your financial situation in general and assess the best choices for addressing payday debt.

: Close family and friends could be a source of help when they’re willing and able to give your need for cash in the emergency to repay the payday loans. Be sure to draft a loan agreement to prevent miscommunication about when and how you’ll be able to repay them.

Consider extended repayment plans: Some lenders may offer an extended repayment plan, which lets you pay less over a longer period of time. This plan could be subject to an additional charge and the terms and conditions can differ according to the state and lender.

Payday loan alternatives if you need cash fast

One way to avoid needing to take out an payday loan in the future is to build an , which is a savings account to cover any unexpected costs. Even a $500 emergency fund can help you stay out of payday loans.

The process of building an emergency fund takes time, but when you require cash in a hurry, these alternatives aren’t as expensive as payday loans and don’t require an excellent credit score.

: PALs allow federal credit union members to borrow smaller amounts of money at a reduced cost and with a longer time frame compared with payday loans. You’ll need to become a part of the credit union before you can apply.

Apps for mobile phones like and allow users to access a portion of their paycheck in advance, generally at a cost of a small amount that could help pay for the cost of an unexpected expense.

Local community groups: A lot of nonprofits and religious organizations offer emergency funds for essential expenses such as groceries, utilities or rent. Find out what’s available in your state.

: «Buy now, pay later» apps such as and provide pay-in-four payment plans with zero interest. These apps could help you pay for an essential purchase you can’t afford upfront however, beware of spending too much.

Small-dollar loans: Some credit unions and banks provide small-dollar loans at lower rates than payday loans. If you’ve established a strong relationship with your bank or credit union then you might have a better chance of approval.

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

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