Payday loan consolidation is when you combine multiple existing payday loans under one new loan, which it usually paid off in monthly installments at a lower interest rate.
You might want to consolidate your payday loans if you have multiple out at one time and you’re struggling to manage the payments on them.
By consolidating payday loans with a lower-interest loan, you can have a longer repayment period and small monthly payments that are easier to manage. Consolidation can also be less overwhelming to manage and help you stick to your debt payoff plan.
What is Payday Loan Consolidation?
Payday loans have been known to help customers in a tight financial bind, but ultimately, they can be very expensive in the long run. A debt consolidation loan is designed to group your high-interest loan balances into one lower-interest loan.
If you want to consolidate payday loans, you’ll need to apply for a personal loan from an online lender, credit union or bank.
Once approved for a personal loan, you’ll receive a lump sum of money that you’ll use to pay off your payday lenders. You’ll then make monthly payments on your new personal loan until that loan is paid in full.
How To Consolidate a Loan:
As long as you can qualify for a personal loan at a lower interest rate than your payday debts and afford the monthly installments, payday loan consolidation can be a good idea. You should speak to your lender to see if they offer this option.
1. Add up your payday loan balances
The first step to consolidate your payday loans is to add up your current balances for all payday loan debt. Loan amounts for personal loans vary, but typically start around $1,000, so you’ll need at least $1,000 in payday debt to apply.
2. Shop around for the best loan
Once you know the amount you need to pay off your debts, shop around and compare loan options from different lenders.
Personal loans are offered at credit unions, online lenders and some banks. Credit unions and online lenders may look more favorably upon applicants with short or no credit history or bad credit scores.
One of the best ways to compare loan product offers is to pre-qualify, a process which lets you see what loan amount, rate and term you may qualify for without hurting your credit score. Not all lenders offer pre-qualification, but a lot of online lenders do – you just need to ask.
4. Apply for the loan and receive your funds
Once you’ve chosen a lender and ensured they do offer loan consolidation products, the next step is to apply. Applying for a personal loan includes filling out an application, usually online, with personal information like your Social Security number, address and contact details. You’ll also need to submit documentation, including proof of identity, employment and income.
If your application is approved, you’ll sign the loan agreement and receive funds typically within one week, though some lenders do offer same-day funding if you’re approved.
5. Pay-off your lenders and begin the repayment on your consolidation loan
Once you have the money, go to each payday lender and pay off your individual debts. This step is the most important; if you skip it and use the money elsewhere, you could end up even deeper in debt.
Once your debts are paid off, make a plan to pay off your debt consolidation loan. Missed payments can mean a late fee, and payments received 30 or more days past due can be reported to the credit bureaus, which could jeopardize your credit score.
Does Loan Consolidation Affect Credit?
A payday consolidation loan typically does show up on your credit and depending on how you manage the consolidation loan, it has the potential to help or hurt your credit.
When you first apply for a consolidation loan, you can expect to see a small dip in your credit score which occurs because a lender’s request to view your credit report or score shows up on your credit report as a “hard inquiry.” However, this is only temporary.
However, your scores can see an improvement in the long-run. Making timely payments on the consolidation loan, keeping balances low on your other credit accounts and avoiding unnecessary applications for credit can help drive this increase.
By consolidating, you’re also freeing yourself from the high-interest debt of your payday loans, which can save you money and make your debt payments more affordable.