How a Payday Loan Consolidation Works
Payday loan consolidation is a financial strategy that helps borrowers escape the cycle of high-interest payday loans. It involves taking out a new loan with lower interest rates and more manageable terms to pay off multiple existing payday loans.
While payday loans often carry APRs of 400% or more, consolidation loans typically offer APRs between 6% and 36%. This reduction in interest can save borrowers money and provide a clearer path out of debt.
Consolidation loans usually offer extended repayment periods, allowing borrowers to spread payments over months or years, rather than the typical two-week cycle of payday loans. Besides that, it’s a way easier to deal with just one payment, instead of multiples.
Payday Loan Consolidation Companies
Based on our analysis, these companies could be particularly interesting for people exploring payday loan debt consolidation offers.
Upgrade
Chosen 2,531 times- High Trustpilot Rating
- No prepayment fees
- Fast Funding
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We can say Upgrade is the best payday loan consolidation company for those who seek a low interest rate. They lend between $1,000 and $50,000, and the terms can go up to 84 months. But the best news is that APR stays between 8.49% and 35.97%.
However, you must meet three requirements: a credit score of 560 or higher, at least two accounts on your credit history, and a debt-to-income ratio of 75% or less.
OppLoans
OppLoans is the best payday loan consolidation company for borrowers with poor credit seeking longer repayment terms. You can get loans from $500 to $5,000 with terms up to 18 months. All of this through an easy application process, without a credit check.
All you need is a minimum income of $1,500 per month and at least 30 days with your current employer.
Upstart
Upstart is also an option with some requirements, but a good APR. They’re the best payday loan consolidation company fo people with a good credit. Their fees range between 7.80% and 35.99% for loan amounts from $1,000 to $50,000. You can repay it within 60 months, depending on the amount.
To be approved, you’ll need to have an annual income higher than $12,000 and no current or recent bankruptcy. The good news is you can apply without damaging your credit score.
Other Alternatives
If you don’t fit in any of the best payday loan consolidation company, don’t worry, there are some alternatives that may meet your needs.
| Company | Interest | Loan Term | Loan amount | Accepts bad credit: | |
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| 5.99% – 35.99% | 3 Months – 2 Years | $100 – $5,000 | Yes | Explore more |
recommended
| 5.99% – 35.99% | 2 Months – 7 Years | $100 – $50,000 | Yes | Explore more |
recommended
| 5.99% – 35.99% | 3 Months – 6 Years | $250 – $35,000 | Yes | Explore more |
| 5.99% – 35.99% | 3 Months – 6 Years | $500 – $10,000 | Yes | Explore more |
recommended
| 5.99% – 35.99% | 2 Months – 6 Years | $500 – $35,000 | Yes | Explore more |
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| Company | Overall Rating | Interest | Loan Term | Loan amount | Accepts bad credit: | Get Started |
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recommended
| 5.99% – 35.99% | 3 Months – 2 Years | $100 – $5,000 | Yes | Explore more | |
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recommended
| 5.99% – 35.99% | 2 Months – 7 Years | $100 – $50,000 | Yes | Explore more | |
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recommended
| 5.99% – 35.99% | 3 Months – 6 Years | $250 – $35,000 | Yes | Explore more | |
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| 5.99% – 35.99% | 3 Months – 6 Years | $500 – $10,000 | Yes | Explore more | |
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recommended
| 5.99% – 35.99% | 2 Months – 6 Years | $500 – $35,000 | Yes | Explore more |
Understanding Payday Loan Debt Consolidation
To better understand the consolidation, we need to fully comprehend the payday loan itself. Here’s how a typical one works:
- You borrow a small amount, usually $500 or less
- You provide a post-dated check or access to your bank account for repayment
- The debt consolidation loan is due in full on your next payday (usually 2-4 weeks)
- The lender charges fees of $15-$30 per $100 borrowed
While $15-$30 may not sound like much, it equates to an annual percentage rate (APR) of nearly 400% for a two-week loan. For comparison, the average credit card APR is around 16%.
The short repayment period means many borrowers can’t pay back the full amount when it’s due. Instead, they’re forced to renew or “roll over” the loan, incurring additional fees each time. Before long, borrowers end up owing far more than they originally borrowed.
This is where payday loan consolidation companies comes in.
Payday loan debt consolidation allows you to combine multiple high-interest payday loans into a single, more affordable loan with a lower interest rate and longer repayment term.
Here’s how it works:
- You take out a new personal loan or debt consolidation loan
- Use the funds to pay off your outstanding payday loans
- Make fixed monthly payments on the new loan over 2-5 years
Essentially, payday consolidation loan gives you a fresh start and a more manageable path to becoming debt-free. Instead of being trapped in an endless cycle of renewals and fees, you have a clear timeline for paying off your debt once and for all.
Payday Loan Requirements
To qualify for payday loan debt consolidation, you’ll need to meet the following requirements.
Basics requirements – The standard requests in any loan: Be 18 or older and a U.S. citizen/permanent residente, have an active checking account and provide proof of identity and address
Verifiable income – Lenders want to see that you have a steady source of income to repay the debt consolidation loan. This can include employment, self-employment, benefits, etc.
Credit Score – While some lenders work with bad credit, you’ll usually need a credit score of at least 550-580 to qualify. A higher score can help you get better rates.
Debt-to-income ratio – You’ll need a debt-to-income ratio under 50%. This measures how much of your monthly income goes toward debt payments. For instance, if your salary is $2000 per month and you’re spending $800 in debts, your DTI is 40%. If in a given month you had to spend $1500 on debt, your DTI would drop to 75%.
Remember, the exact requirements can vary by lender. Some may have more stringent criteria, while others specialize in working with borrowers who have bad credit or limited credit history.
If you’re not sure if you qualify for payday loan consolidation companies, many lenders offer free pre-qualification. This allows you to check your rates and eligibility without impacting your credit score.
Steps to Consolidate Payday Loans
Ready to break free from the payday loan trap? Let’s walk through the process step-by-step. Don’t worry, it’ll be simple and clear so you can take action with confidence.
Steps
Choose a Lender
To start off on the right foot, select one of the companies that we have compared here.
Take Stock of Your Payday Loan Debt
Gather all the details about your outstanding payday loans. You’ll need:
- The names of your lenders
- How much you owe each one
- The interest rates and fees for each loan
- Due dates for each loan
Write it all down or put it in a spreadsheet. Seeing the full picture can be scary, but it’s crucial for moving forward.
Check Your Credit Score
Your credit score plays a big role in your consolidation options. The average credit score needed for a debt consolidation loan is around 650, but some lenders work with scores as low as 580 or even lower.
Don’t panic if your score is low. There are still options, which we’ll cover everything in this article.
Gather Necessary Documents
To apply for a consolidation loan, you’ll typically need:
- Proof of income (pay stubs, tax returns)
- Bank statements
- Government-issued ID
- Social Security number
- List of your debts to be consolidated
Having these ready will speed up the application process.
Apply for the Loan
Once you’ve chosen a lender, it’s time to apply. Many lenders offer online applications that take just minutes to complete.
Be honest and accurate with your information. Lenders will verify it, and discrepancies could hurt your chances of approval.
Pro tip: Some companies offer pre-qualification. If you have this option, worth a try.
Review and Accept the Loan Terms
If approved, carefully review the loan offer. Pay attention to:
- Interest rate
- Monthly payment amount
- Repayment term
- Any fees (origination fees, prepayment penalties, etc.)
Make sure you understand and can afford the terms before accepting.
Use the Loan to Pay Off Your Payday Loans
Once you receive the funds, immediately pay off all your outstanding payday loans. Don’t be tempted to use the money for anything else!
Important: Contact each payday lender to confirm the loans are paid in full and your accounts are closed.
To avoid missing payments on your new consolidation loan, set up automatic payments from your bank account. This helps ensure you stay on track and can even improve your credit score over time.
Pro tip: To avoid falling back into payday loan debt, create a realistic budget and start building an emergency fund. Aim to save at least 3-6 months of expenses.
How to save $1,190.00 on your loan
The price difference for a $500.00 loan in 90 days is $1,190.00.
Payday Loan Consolidation for Bad Credit
Struggling with bad credit? Don’t lose hope. While a low credit score can make payday consolidation loan more challenging, it’s not impossible. Let’s explore your options.
First, let’s clarify what we mean by “bad credit.” Generally, a FICO score below 580 is considered poor. If your score falls in this range, traditional debt consolidation loans might be harder to get. Now, let’s take a look into the options.
Bad credit personal loans – Some lenders specialize in working with borrowers who have less-than-stellar credit. These loans typically have higher interest rates than prime loans, but they’re still much cheaper than payday loans. Check the best loan providers for bad credit.
Secured personal loans – If you have an asset like a car or savings account, you might qualify for a secured loan. These loans use your asset as collateral, which can help you get approved even with bad credit. Learn more about secured loans.
Credit union payday alternative loans (PALs) – Many credit unions offer payday alternative loans specifically designed to help people escape payday loan debt. These loans typically have lower interest rates and longer repayment terms (1-12 months). Here are the best credit union loans.
Debt management plans – If you’re really struggling, consider working with a non-profit credit counseling agency. They can help you create a debt management plan, which may include negotiating with your payday lenders for better terms.
What if Consolidation Isn’t an Option?
If your credit is severely damaged, you might not qualify for consolidation right away. Don’t give up! Here are some alternatives to consider:
- Negotiate with your lenders: Some payday lenders may be willing to extend your repayment period or lower your interest rate if you explain your situation.
- Seek credit counseling: A credit counselor can help you create a plan to improve your finances and eventually qualify for consolidation.
- Bankruptcy Vs Payday Loan Debt Consolidation: In extreme cases, bankruptcy might be the best option to get a fresh start. Always consult with a legal professional before pursuing this route.
Pros and Cons of Payday Loan Consolidation
Let’s break down the good, the bad, and the ugly of payday loan consolidation online. Knowing these can help you decide if it’s the right move for your finances.
Lower interest rates: Consolidation loans typically have much lower APRs than payday loans, potentially saving you hundreds or even thousands in interest.
Simplified payments: Instead of juggling multiple payday loans, you’ll have just one monthly payment to manage.
Longer repayment terms: Unlike payday loans due in 2-4 weeks, debt consolidation loans offer months or years to repay, making payments more manageable.
Credit score improvement: As you make on-time payments on your consolidation loan, your credit score may improve over time.
Break the cycle: Consolidation can help you escape the payday loan trap and avoid taking out new high-interest loans.
Pros
Potential fees: Some lenders charge origination fees or prepayment penalties, which can add to the cost of the loan.
Longer debt timeline: While monthly payments are lower, you might be in debt for a longer period compared to quickly paying off payday loans.
Temptation to borrow more: Once your payday loans are paid off, you might be tempted to take on new debt if you haven’t addressed the root causes of your financial issues.
Cons
Hidden Facts About Payday Loan Consolidation Programs
Think you know everything about payday loan debt consolidation programs? Think again! Here are some eye-opening facts that might surprise you.
The “Snowball Effect” Can Work in Your Favor
Most people think of the snowball effect negatively when it comes to debt. But with payday loan consolidation online, it can actually work for you.
As you pay off your debt consolidation loan, you’re likely to see your credit score improve. This can lead to better loan terms and lower interest rates on future borrowing. It’s like a positive financial snowball, gaining momentum as you go.
Consolidation Might Save You More Than You Think
The average payday loan borrower spends $520 in fees to repeatedly borrow $375, according to the Pew Charitable Trusts. That’s a lot of wasted money!
Consolidation can dramatically reduce these fees. Even if your consolidation loan has a higher interest rate than traditional personal loans, it’s still likely to save you hundreds or even thousands compared to repeatedly rolling over payday loans.
You Might Have More Options Than You Realize
Many people assume they won’t qualify for consolidation with bad credit. But here’s a little-known fact: Credit unions often offer payday alternative loans (PALs) with much more favorable terms than traditional payday loans, even for those with poor credit.
These loans are capped at 28% APR and offer longer repayment terms. Plus, some credit unions don’t even require a credit check for these loans.
Consolidation Can Protect Your Bank Account
Here’s a scary stat: One in five payday loan borrowers eventually have their bank accounts closed due to repeated overdrafts, according to a report from the Center for Responsible Lending.
Consolidation can help protect your bank account by stopping the cycle of automatic withdrawals from payday lenders that often lead to overdraft fees.
It’s Not Just About the Money
While the financial benefits are clear, there’s a hidden psychological benefit to consolidation. Many borrowers report feeling an immense sense of relief and reduced stress after consolidating their payday loans.
This mental health boost can have ripple effects, improving your overall well-being and potentially even your job performance or relationships. It’s a benefit that’s hard to quantify but shouldn’t be overlooked.
Remember, knowledge is power when it comes to managing your finances. Use these hidden facts to make an informed decision about payday consolidation loan and take control of your financial future.
Alternatives to Payday Loan Consolidation
Didn’t qualify for payday loan consolidation companies at all? Don’t worry, you’re not out of options! There are several alternatives that can help you break free from the payday loan cycle and get your finances back on track. Let’s explore some of your choices.
Credit Counseling
Credit counseling is a great first step if you’re feeling overwhelmed by debt. Here’s what you need to know:
- What it is – A credit counselor reviews your finances and helps you create a debt management plan.
- Pros – Free or low-cost, provides education on budgeting and money management.
- Cons – Doesn’t directly provide funds to pay off debt.
- How to apply – Contact a non-profit credit counseling agency. Many offer free initial consultations.
Debt Management Plan
A debt management plan (DMP) can be a powerful tool for getting out of debt:
- What it is – A plan where you make one monthly payment to a credit counseling agency, which then pays your creditors.
- Pros – Can lower interest rates and fees, simplifies payments.
- Cons – May require closing credit accounts, can take 3-5 years to complete.
- How to apply – Set up through a credit counseling agency after a financial review.
Personal Loans
Personal loans can be a good alternative to payday loans:
- What it is – A lump sum loan repaid in fixed monthly installments.
- Pros – Lower interest rates than payday loans, longer repayment terms.
- Cons – May be difficult to qualify with poor credit.
- How to apply: Compare personal loan offers from banks, credit unions, and online lenders.
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Payday Alternative Loans (PALs)
Credit unions offer these as a safer alternative to payday loans:
- What it is – Small, short-term loans with capped interest rates.
- Pros – Much lower interest rates than payday loans, regulated by federal government.
- Cons – Must be a credit union member to apply.
- How to apply – Contact your local credit union or find one that offers PALs.
Borrowing from Friends or Family
While not always possible, this can be a low-cost option:
- What it is – Borrowing money from people you know personally.
- Pros – Potentially interest-free, flexible repayment terms.
- Cons – Can strain relationships if not handled properly.
- How to apply – Have an honest conversation and put the agreement in writing.
Remember, no matter which option you choose, Financer’s Loan Finder tool can help you compare offers and find the best deal. It’s free, easy to use, and can save you time and money in your search for financial solutions.
In conclusion, payday loan debt doesn’t have to be a life sentence. Whether through consolidation or one of these alternatives, there’s a path out of the payday loan trap.
