I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.See all posts Frank Gogol
How to Refinance Your Payday Loan
Payday loans are enticing to many people as a quick source of extra funds, but paying off these loans can be extremely difficult. With some of the highest interest rates of any loan and short terms of repayment, debt from payday loans can add up quickly.
One solution for escaping this cycle of payday loan debt is refinancing. This article provides a guide on getting out of payday loan debt, along with a detailed explanation of how refinancing can help.
What is a Payday Loan?
A payday loan is a small loan disbursed at high interest, with a very short-term length of repayment. Typically, these loans are secured when the borrower receives a paycheck, with the expectation that the loan will be repaid when the borrower receives their next paycheck.
Why Payday Loans are So Hard to Payoff
Payday loans are becoming increasingly notorious as predatory and dangerous forms of lending. The exorbitant interest rate on most payday loans leads to huge interest payments. Meanwhile, the term lengths of the loans are short enough that making these payments in time is often challenging.
Also, the principal amount borrowed in a payday loan is frequently greater than the borrower’s next paycheck, which will likely be signed over in full to the lender. Borrowers, then, cannot pay off the interest on the loan, which continues to accrue rapidly.
Finally, add to this cycle of entrapment the fact that most borrowers considering payday loans are already financially unstable. This combination of factors leaves many payday loan borrowers trapped with huge debt, only paying off the interest on their loans, if that.
4 Options to Get Rid of a Payday Loan Fast
There are simple steps that you can take to minimize or eliminate your payday loan debt quickly. Read on for some helpful tips.
1. Borrow From Friends and Family
Having a support network that you can draw from is extremely valuable. Borrowing from close friends or family can give you access to funds without having to deal with steep interest rates and term lengths. However, borrowing from close ones also brings the risk of conflict if you struggle to repay the borrowed amount. It’s best to only borrow from your personal support network if your need is urgent, and if you are confident that you can repay the debt.
2. Request an Extended Payment Plan
If you cannot make the necessary payments on your loan, an extended payment plan can be helpful. An extended payment plan will divide your loan into smaller increments that you can pay over a longer period of time. Extended payment plans also often mean paying more overall in interest, though, since the interest accrues over a longer period.
3. Look into Debt Assistance for Payday Loans
There are numerous nonprofit organizations and counseling programs offering debt assistance. Getting credit counseling from a reputable expert can help you gain a thorough understanding of your debts and a plan for paying them off. Just make sure that you choose a respected, reliable source. Otherwise, your counselor could end up giving you bad advice, and your financial outlook could worsen.
4. Refinance a Payday Loan with a Personal Loan
Consolidating your payday loans by refinancing with a personal loan can save you money and simplify the repayment process. Refinancing is the process of using a personal loan to pay off your payday loan debt. By refinancing, you can get a lower interest rate and more favorable terms of repayment (including a longer repayment plan).
How to Refinance a Payday Loan with Stilt
If you’re an immigrant stuck in the cycle of payday loan debt, finding a lender willing to refinance is often difficult. However, Stilt is an online lender which offers financial services aimed specifically at immigrants and noncitizens in the United States.
Getting a loan with Stilt is extremely simple and expedient; read the following section for a breakdown of the process.
Fill Out an Application
The first part of getting a loan with Stilt is completing the application; this can be done in as little as 20-30 minutes. In your application, you must provide not only credit and financial information but also information on education and employment. This lets Stilt assess more peripheral factors so that they can be more inclusive in providing loans to immigrants.
Get a Response Within 24 Hours
Once you complete the application, you should receive a decision within 24 hours. This decision will include the loan amounts and term lengths that you qualify for, along with an interest rate. You then choose among the amounts and terms that you qualify for and sign a promissory note agreeing to the details of the loan.
Receive Your Funds
Upon signing the promissory note, you will receive the funds within a day or two. At this point, you start making monthly payments in accordance with the repayment schedule that you agreed to.
Stilt has established itself as one of the big players amongst online lenders and has carved out a niche in serving immigrants. Thousands of immigrants and noncitizens have received millions of dollars in loans from Stilt, and refinancing your payday loans with Stilt can both alleviate urgent debts, and save you money in the long term.
3 Benefits of Refinancing a Payday Loan
Refinancing typically gets you much more favorable terms of repayment than the terms of a payday loan. See the following section for some of the ways that refinancing can benefit your bottom line.
Potentially Longer Repayment Period
The extremely short term lengths of payday loans can cause significant problems. One of the biggest benefits of refinancing is that you can negotiate a much longer repayment period with the lender. Extending your repayment period is crucial if you are missing payments since it will slow the accruement of interest.
Likely Lower Interest Rate
Refinancing also typically obtains the borrower a lower interest rate than payday loan rates. Since you must qualify for refinancing separately, lenders offer lower interest rates to eligible borrowers. Rates on payday loans are frequently astronomical, running at 300%-400% APR. Credit card rates are closer to 15%-30%, while personal loan rates are typically in the 14%-35% range.
Reduced Payment Amounts
Since the extended repayment period spreads the debt over a greater length of time, your debt payments on refinanced loans are much less than payday loans. Also, the lower interest rate on refinanced loans means less overall interest paid on the loan.
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For many, refinancing is an invaluable step that both buys time and saves money, and this is especially true when refinancing payday loans. Payday loans have the worst terms of almost any loan, so you’re almost sure to get substantially better terms from refinancing. Immigrants and noncitizens should look to lenders like Stilt, who