One of the saddest things I see is people searching for another loan to pay off their existing payday loan debts. This is a sign that a borrower has let their high rate APR loans, such as payday loans and cash advances, swell out of control to the point when they are desperate to find a way to clean up their short term lending debt.
It also means that when a borrower is looking for a way to pay off their payday loan debts, they are beginning to “get real” about their personal finances, and has faced the fact that some sort of debt consolidation is required – pronto. This is actually really good news, as long as the borrower (or YOU!) finds a loan that is approved by reputable lender, bank, or lending institution of some kind.
So we’re not talking about another payday loan here – we’re talking about a typical/normal installment loan whereby you make payments back on the note periodically (monthly or biweekly) until the loan is paid up in full. Of course this more of a consolidation loan, as the borrower consolidates all of their payday loans and cash advances into one lower payment. This will save the borrower hundreds (sometimes thousands) of dollars in APR costs – interest.
Many lenders who are willing to lend money to someone who is clearing up, and paying off, various different payday loans will generally charge allot of fee costs up front and interest rate costs as a way to penalize the borrower. This doesn’t seem fair, I know – but this is just the reality of the banking business. This includes conventional so-called banks, and the loan shark style lenders who take advantage of borrowers who can’t get a conventional loan.
The most important thing I can suggest (out of the gate) is to NOT get another cash advance or payday loan for $1500, $2000, or $3000 dollars. That is the worst thing you can do. The best thing you can do, if at all possible, is borrow some money from a relative that you can trust (and vice versa) to pay off the payday loans, and then pay them back with no interest – or at least very LOW interest. Usually I would suggest never borrowing from family and friends unless it’s an emergency, but in a case where you gave allot of built up debt that is rolling over penalty fees and high interest, it IS an emergency. If you can’t get a low interest loan from a close friend or family member, then start talking to the banks and conventional lenders.
Start by getting an appointment with a loan officer at the bank and branch you do your banking with right now. This is your best chance for a conventional loan with a reasonable APR (annual percentage rate).
Tell the loan officer about your payday loan debts (ALL your payday loan debts) and any other debts you may have. It’s very important that you tell the loan officer about every penny you owe. Then, and only then, will you be on the road to financial recovery and stability in your life. If you only have payday loan debts that total under $5000 – something like $2000 to $5000 – you will likely get approved by your banks loan officer for a small, short term loan.
If you have over $5000 owing in payday loans, your bank may still help you out with a personal loan, but they may not. Why? Because you may have other outstanding debts on the books that bring your total debt up to what the bank thinks is unmanageable and therefore label you as too high of a risk. This can especially be the case if you already have a debt consolidation loan with your bank, you are over extended, and your employment situation is precarious.
If this is the case you will be looking at a completely different kind of situation, whereby you may need to hire an attorney, or attorney’s office (such as the Lexington Law Firm) to act a trustee for you and negotiate with all of your debtors, and not just the payday loan companies you owe money too. The attorney (or attorneys) will negotiate your with all the banks and lenders you owe money to, and setup an agreement with them so that you pay off all your debts over time, and for a much lower rate. If you have allot of payday loan debt, this will save you big bucks.
You may not be at a stage where you need some credit repair company or lawyers office to help you, but I had to mention it.
For the purposes of this post, we need to show some equations and examples of multiple payday loans being paid off at once.
Example #1- Paying Off 3 Payday Loans
For this example we’re using an example that one of our visitors emailed us about. He had 3 different payday loans he had to pay back. His cash advances were as follows.
- payday loan with The Cash Store for an original paycheck advance of $1000 – arrears, penalties, fees, and interest making the new amount owing; $2872.89
- payday loan with Speedy Cash for an original paycheck advance of $1500 – arrears, penalties, fees, and interest making the new amount owing; $3797.23
- payday loan with CashNetUSA for an original paycheck advance of $2000 – arrears, penalties, fees, and interest making the new amount owing; $4119.63
The total owing on this borrowers payday loans is $10,789.75 dollars, and counting, growing, and moving. As you can well see, if this borrower does not get it together and find a loan for $10,000 or more at a reasonable APR, or they come into some money through a family loan, an angel loan, lottery, inheritance, or big job promotion, they will be buried in growing debt for a long time to come.
In this example our borrower had other debts with department store credit cards, Visa, and Mastercards, totaling $4000 dollars and change. He needed a loan for $15,000 dollars to pay off all these debts and his payday loan debts which were strangling him.
So for $15,000 we can calculate his new responsibilities with the bank. This is a biweekly payment schedule, and the full length of the loan is 3 years at an APR of 9%. In some case the APR will be even higher if the bank sees the borrower as a higher risk. I’ve seen this kinds of consolidation loans with annual percentage rates as high as 15% – and these are conventional lenders.
Loan Calculation Results for Paying Off all Payday Loans and Credit Cards
Total Amount to be payed: $17,050.95 over 3 years
Total amount of interest $2,050.95 over 3 years
Payments: $218.00 biweekly (every two weeks)
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Example #2- Paying Off 2 Payday Loans
For this example we’re using a fictitious example of a college student (we’ll call Mary) who has 2 payday loans outstanding. They are as follows;
- payday loan with My Payday Loan for an original advance of $1000 – arrears, penalties, fees, and interest making the new amount owing; $2567.74
- payday loan with The Money Tree for an original paycheck advance of $2000 – arrears, penalties, fees, and interest making the new amount owing; $6748.35 (this can happen believe it or not – seen worse) $2000 can grow into over $10,000 if you understand the APR for a payday loan can be as high as 500%. Over time with fees and penalites it can really ugly, and then the payday loan company will hire collectors to harass you until you pay up. They don’t really care if you pay off your total amount, but even better, pay them back in small amounts over time based on their penalties, late payment fees and interest.
So the total Mary needs to pay off these two payday loan is $9,316.09. She needs a $10000 loan from a reputable lender. She gets a loan with an interest rate of 6% over 3 years, and paid once a month payment periods.
Loan Calculation Results for Paying Off Mary’s Two Payday Loans
Total Amount to be payed: $10,924.83
Total amount of interest $924.83
Payments: $299.31
Notice how small Mary’s interest cost is for the 3 year payback period. Notice how her payments are a steady $300 dollars a month. The payday loan companies are all now paid off, and they can’t send collection agencies after her. She can rest easy, making her monthly payments on her $10,000 dollar loan and get her personal finances back in order once and for all.
As long as she doesn’t over extend herself again and spend more money than she can afford to pay back on the new “things” she’ll be fine. No personal finance crisis is fixed with a simple debt consolidation loan – it requires a change in perspective and change in lifestyle. A change in spending habits an a change it many things that go with that big change.
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As you can see in both of above examples, the borrowers are crawling out from under a massive amount of debt. By paying off their payday loans with a “real” installment loan, they can get on with their lives and chalk it up to “the price of an education”.
If you have payday loans that are getting way out of hand because you don’t have the monthly income to pay off your debts, and the penalties are adding up so fast that it’s mathematically impossible to overcome the situation, then it’s time to get a new loan to pay off all your payday loans.
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A LOAN CALCULATOR FOR CRUNCHING YOUR NUMBERS IS BELOW; Enter your loan amount, how many years, the interest rate, and payment frequency (14 for biweekly, 30 for monthly, 7 for weekly. Very helpful so you know exactly what the loan will cost you in interest payments and you will know the total COB (cost of borrowing).
7 Comments
Payday loans are a great resource, but they need to be used responsibly just like a credit card or other traditional loan. Check ‘n Go offers payday loans in many states, and also from the convenience of your own home.
Yes, I’ve heard of the Payday Loan company Check ‘N Go before. Heard that they too have massive penalties and fees for those who are late on their repayment.
As you said, “they need to be used responsibly”, but they are NOT just like a Credit Card or traditional loan. The penalties and fees are stupid ridiculous and designed to really hammer borrowers who have trouble paying back on time. Also, does Check N Go actually tell all of their clients (borrowers) what they will be owing if they are ever late paying back their balance?
I call Loan Shark here.
I know that Payday Loan companies do provide a service that traditional lenders don’t provide, and if the borrower pays back what they owe on time, it CAN be a worthy financial product and service, however, some of these Payday loan companies are out for blood.
I urge all borrowers who read CLF to avoid Payday Loans like the plague, and if you have any Payday loans outstanding, pay them off and never return.
I really dislike having to use these damn paycheck loans, but it is sometimes necessary. I would rather pay the fees than sit in the dark if I don’t pay my power bill.
You may find this video interesting because it translates a credit card late fee and a bounced check fee into an APR. Click here to see video on Payday Loan APR reality.
We don’t think Pay Day loan personal financing products are the same as credit cards or traditional types of lending, but all 3 need to be employed in a responsible manner.
Millions of Americans have gotten themselves into deep trouble (and are desperate!) because they have overextended their credit card(s), or used a conventional loan for something they can not afford.
Thank you for the heads up on the Check N’ Go video Emily. Even though it is obviously advertising, it is helpful to our visitors to see the reality of APR on a Payday loan.
This is all great information, BUT, if you have less than perfect credit AND several payday loans, no one is going to give you a low interest personal loan to pay this stuff off. If you know of anyone, please do tell!
It’s not as desperate as that. It’s not entirely true that you can’t get a low interest personal loan to pay off multiple payday loans – it comes down to job security and collateral.
Frustrated – have you gone to any banks looking for a consolidation loan yet? If you did, what was the answer back on your con loan application?
Also, what kind of income do you have – monthly or biweekly?
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