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Guide to Refinancing Payday Loans

Guide to Refinancing Payday Loans
Jason Steele
Jason SteeleUpdated March 23, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
You may have taken out a payday loan if you needed fast cash. But payday loans are generally very hard to pay off because they charge high interest rates and fees and have a short repayment period. If you can’t pay them in time, you might end up in a cycle of debt.Fortunately, there are options that may help, such as refinancing payday loans. Read on to find out how to refinance a payday loan.

Can You Refinance Payday Loans?

How payday loans work is that the principal amount you borrow is part of your paycheck. Payday loans are typically for $500 or less, and they’re due on your next payday. You might have opted for a payday loan because you needed a fast personal loan. But because of the high interest and fees that generally come with payday loans, you could end up owing more than three times as much money as you borrowed. If you can’t repay these loans in the short amount of time allotted, you may be able to refinance payday loans. What does refinancing a payday loan mean? There are different ways to do it. One method is to refinance a payday loan by taking out a personal loan, which will typically have a lower interest rate and a longer repayment term. 

How to Refinance a Payday Loan

If you’d like to refinance a payday loan, there are a few simple steps you can take.

1. Read Your Payday Loan Agreement

Review your payday loan agreement to make sure you know what the interest rate is, the cost of any fees involved, and whether there’s a prepayment penalty you might have to pay.

2. Research Alternative Loan Options

Just like refinancing personal loans, there are multiple options for refinancing payday loans. Be sure to explore the different alternatives to find the best one for your situation. Look for an option with the most favorable interest rates and terms.

3. Apply for a New Loan

When you find a refinance loan that fits your needs, you can fill out a loan application. You’ll likely need to meet certain criteria for income, credit score and credit history, and debt-to- income ratio. Every lender has different qualifications, so find out what’s needed for the loan you’re interested in. 

Pros and Cons of Refinancing Your Payday Loans

Before refinancing payday loans, it makes sense to weigh the benefits and drawbacks.
Refinancing could help lower your interest rates and fees.You may have to pay a prepayment penalty.
Refinancing could help extend your repayment term so you have longer to pay off the loan.If you’re taking out a personal loan for refinancing, you’ll have to qualify for it.
Paying off the new loan may improve your credit score over time.Refinancing usually involves a hard credit check which could cause a temporary dip in your credit score. 

Options for Getting Out of Payday Loan Debt

When you have payday loan debt, you may feel like it’s impossible to pay off. But fortunately, there are ways to get out of payday loans. Here are methods to consider.
  • Ask about extended payment plans: These plans divide your loan amount into smaller increments over a longer period of time, which may make it easier for you to pay what you owe. However, keep in mind that extended payment plans often involve paying more interest overall because the interest accrues over a longer period. 
  • Debt assistance counseling: Some nonprofit credit counseling organizations offer debt assistance. Credit counseling can help you understand your debts and create a plan to pay them off. Just make sure that the credit counseling organization is licensed in your state and that the counselor is certified. You can check out credit counseling organizations with your state’s attorney general’s office or consumer protection bureau.
  • Borrow from friends and family: If you have friends or relatives who would be willing to lend you money, a family loan could help you repay the payday loan. But be sure to put the terms of the agreement in writing, including when you’ll repay the money, to help prevent any damage to your relationship. In general, it’s wise to borrow money from friends and family only if you’re confident you can repay it in a timely manner. 
  • Refinance a payday loan with a personal loan: Refinancing payday loans with a personal loan could help you get better rates and terms since personal loan interest rates tend to be lower and repayment terms are longer. 
Personal loans are a type of installment loan. With personal loans, a bank, online lender, or credit union lends you a lump sum that you repay with interest in installments over time. Once you’re approved for a personal loan, you may expect to receive funds quickly, typically within one to five days.  Keep in mind that you’ll need to qualify for a personal loan. Lenders have different criteria for the credit score, credit history, and income you need to qualify, so explore your options. 
  • Take out a debt consolidation loan: If you have more than one payday loan, you may be able to consolidate them with a debt consolidation loan, which is a type of personal loan used to consolidate debt. In this instance, you take out a new loan and use the money to fully repay the payday loans, and then you pay off the debt consolidation loan over time.

The Takeaway

If you have a payday loan, there are ways to get out from under the debt you owe, including refinancing a payday loan. Explore the different refinancing options to see what makes the most sense for your situation. Lantern can help you compare personal loan options to refinance a payday loan. Just fill out one simple form, and you’ll get offers from multiple lenders in our marketplace, making it quick and easy to find the best rates and terms you can qualify for. 

Frequently Asked Questions

Can payday loans be refinanced?
Can payday loan refinancing hurt your credit?
How can I get out of payday loan debt?
Photo credit: iStock/Geber86

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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