Can I use a personal loan for payday loan consolidation?

At a glance

Most people associate payday loans with extremely high fees and inconvenient loan terms. When you keep taking out payday loans, you may get trapped in a debt cycle and getting out of it may not be a walk in the park. However, you can use a personal loan for payday loan consolidation to break this cycle and build a better financial future.

You can benefit more when taking out personal loans as compared to payday loans. Some of the benefits that come with personal loans include lower fees and rates, flexible terms and predictable payments. Payday loans, on the other hand, can be a quicker option when you have a financial issue that requires quick funding. But how payday loans work may get you in a debt cycle. This means that the lender will roll over the loan and you will keep on paying extra fee charges until you are through with loan repayments.

In some cases, you may end up spending more on the fees and even exceed the principal loan amount. Based on statistics by Pew Charitable trust, if you borrow a payday loan today of $375 with no plans of paying the debt on time, you may have to pay the total debt in a period of five months or more and spend over $550 just for the loan fees.

If you have challenges paying off your payday loans, one of the options that you can consider is to consolidate these loans using a personal loan. In this guide, we are going to explore how to go about this process, the benefits of payday loan consolidation, the requirements for qualifying for a payday loan for debt consolidation and other alternatives to taking out a personal loan to consolidate your payday loan debts.

Loan consolidation

How personal loans for payday debt consolidation work

The reason why lenders offer debt consolidation loans is to help you pay multiple unsecured loans with high interests, like payday loans and credit card debts into just one loan with manageable repayments and lower interest. Payday loan consolidation will reduce the interest that you would have otherwise paid if you were to pay off the debts separately. You will also have the chance to pay off the debt faster.

If you want to get out of the vicious payday loan cycle, one of the best options that you can consider is to apply for a personal loan for debt consolidation. This is a fast and simple process. It starts by applying for a personal loan. When the lender approves your loan request form, you can pay off all the outstanding payday loans using the approved funds. After that, you can start paying the personal loan based on your agreement with the lender.

A question commonly asked;

What are the loan requirements for a personal loan?

When applying for a personal loan for payday loan consolidation, a variety of financial and personal information will be required by the lender. Other lenders need applicants to provide additional documentation like tax returns, driver’s licence, utility bills and recent pay stubs.

If your main aim is to get rid of your outstanding payday debts with high-interest charges, ensure that you first review your financial situation. If possible, come up with a budget that will accommodate the loan repayments and have enough funds to pay your bills. This will help you become debt free fast. If not, you may find yourself in another cycle of debts and struggle with repayments all over again.

Consolidation
Consolidation

The advantages of payday loan consolidation

One of the top reasons for consolidating payday loans is that you will pay your outstanding payday loans and have enough time to clear the personal loan payments. That said, here are the top benefits of payday loan consolidation;

Low fee charges

Usually, personal loans are affordable in terms of fees and interest payments that payday loans. In general, payday loans attract an APR of almost 400%. On the other hand, personal loans, from reputable lenders of course, usually have an interest rate of between 5% and 36%.

Flexible repayments

When you apply for a payday loan, you only have up to four weeks to pay off the debt, which includes the loan amount, interest rate and all fee charges. This is contrary to personal loans that have a repayment period ranging from 12 to 84 months. Some lenders even allow borrowers to choose repayment terms that are more convenient depending on their budget.

Predictable repayments

Another top reason why payday loan consolidation is helpful is that you will have a single loan to worry about with one monthly payment. These monthly payments are a fixed amount that is paid until the loan term ends.

How you can pay matters

There are very few requirements for payday loans and your loan request can be approved without determining how you are able to pay back the loan. Unlike payday loans, personal loan lenders care about how you can pay the loan. If the information you provide proves that you are less likely to repay a personal loan, chances are that you won’t qualify for financing.

Lenders do not roll over the debt

Personal loans are a form of installment loans. This means that you borrow a fixed sum of money and pay the loan amount, interest rate and fees in equal installments to the end of the loan term. And once you clear paying the debt, the account will be closed. If you still have needs that require money, the only option is to apply for another loan. Lenders do not renew personal loans by only paying the fee charges and not paying the loan balance like how payday loans work.

Is a personal loan the best option for you?

Getting qualified for a personal loan isn’t as easy as qualifying for a payday loan. Also, personal loans are offered in higher amounts when compared to payday loans. Unlike payday loans where you can get approval in a matter of minutes, it may take a longer time to access a personal loan.

To find out whether applying for a personal loan for payday loan consolidation is a good move for you, here are some important things to consider;

Consider the loan amount

The amount that you can qualify for a personal loan usually varies depending on the lender and the application information. In most cases, the minimum amount for a personal loan is $1,500. This is actually higher as compared to the maximum amount you can get for a payday loan.

If you don’t require as much money, you might still be tempted to apply for it. The good thing is that personal loans do not attract prepayment penalties. If you have extra funds to spare, it is still possible to pay off the debt early.

Confirm your credit score

Personal loans, if it is unsecured, will be offered based on your creditworthiness. The potential lender will have to perform a credit check to determine whether you qualify for funding and the maximum amount that you can qualify for. If the details do not qualify you for an unsecured personal loan, the next option is to consider a secured personal loan.

Can you afford to pay back?

When it comes to payday loans, the main requirements are a checking account and recent pay stubs. Personal loans, however, have more stringent requirements. For instance, the lender may also need proof that you can pay back the debt. If you have large amounts of outstanding debts with a low income, chances are that you won’t qualify for the loan.

Consider how soon you need the cash

If you have a pressing issue that requires immediate funding, then a personal loan may not be a good option at the moment. It is true that some lenders can release the funds in two days, but some can take a longer time. The time it takes to get the finds will depend on your lender among other factors.

Single payments
Single payments

Alternatives to personal loans for payday loan consolidation

If you need help paying off your payday loans but your personal loan application won’t be approved, here are other alternatives worth considering;

Negotiate with your creditors

There are states where borrowers are allowed to extend their payday loans repayment period or pay the loan in smaller increments. It all depends on whether the lender can agree on these terms. But when you go with this option, you should be prepared to pay more on interest.

Consider credit counselling

Credit counselling is also another option that can help you get out of a payday loan cycle. Credit counselors are professionals who are trained to help people improve their financial situation. They offer support on financial management, budgeting and loan consolidation programs. A credit counselor will first analyse your current financial position and identify key areas that you need to improve. He or she will also help you come up with a plan on how to pay your outstanding debts. If you feel that this is the path for you, ensure that you work with an organization that is reputable and has a proven track record.

Contact a legal aid attorney

You can also get free legal advice from a legal aid office. These offices work with low-income earners by providing education on debt settlement rights. But you first have to get approved for the program.

In conclusion

Payday loan consolidation with a personal loan can be a prudent option based on certain factors. Just ensure that you weigh the pros and cons of applying for a personal loan for consolidation. Before applying, ensure that you first analyse your financial situation and determine whether you can  afford to pay the debt. If not, try to consider other debt-relief options discussed above.