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Refinancing is when you combine multiple short-term loans under one new source of financing, which is usually paid off in payments at lower APRs. You may be interested in refinancing your payday loans if you have several debts out at one time, especially if you are struggling to manage the installments on time.
By switching your credits with a new type of loan, you might have a longer repayment timeline and small installments that are easier to repay. Refinance can also be less overwhelming to manage and help you get rid of your current debts more easily.
What is a Payday Loan Refinancing?
A payday loan is a small-dollar source of financing used to help borrowers in a tight financial bind. Along with that, this type of loan can be expensive in the long run. A debt refinancing option is created to combine your high-interest balances into one lower-interest loan. If you would like to switch your short-term loans, you will need to apply for a personal loan.
Once approved for a personal loan, you will get a lump sum of cash to repay your old payday lending debts. You will then make monthly installments on your new loan until that loan is paid on time and in full. It is worth noting that the savings received from reduced repayments of your new loan may not exceed the cost of refinancing. You may determine the cost savings by inputting different scenarios in these break-even calculators.
How To Refinance a Loan
As long as you are eligible for a personal loan at a reduced APR than your payday lending and you may afford the recurring repayments, payday loan refinancing would be a smart idea. Here is a step-by-step guide on how to apply for a new source of refinancing.
1. Calculate Your Payday Lending Debts
First of all, you need to add up your current finances for all existing payday loan credits. This way, you can know exactly how much you should apply for a personal loan to cover your expenses. Even though personal allowances may vary in amounts, they typically start off $1,000. Your payday debt add-ups should be at least this sum of money to apply.
2. Shop Around for the Best Deal
Once you know exactly how much you require to repay your credits, review and compare different types of financing from various lending providers. Personal loans are usually available at internet providers, credit unions, and some other financial institutions. That said, internet platforms and credit unions may be more appealing to consumers as they qualify those with poor credit or no credit at all.
3. Pre-qualify
You may look at hundreds of loan options in theory, but one of the best ways to find the best offer is to pre-qualify. The latter is a process that lets you see what amount, rate, and term you may expect from this or that lender’s offer without affecting your FICO score. Not all providers allow to pre-qualify, but most online sites do – you just need to contact their customer support and find out.
4. Apply for the Loan
Once you have chosen a lending provider and ensured they do offer loan refinancing services, the next up is to apply. The application requires you to fill out an official form, including your SSN, proof of address, current official identification, pay stubs, or tax documents https://www.justrightloans.com/ . If your form is approved, you will sign the loan agreement and obtain funds credited to your bank account typically within 5 working days, though some providers do offer same-day deposits after approval.
5. Pay on Your New Loan
Once you have the money in your bank account, go to each payday lending provider and pay off your current credits. Once your debts are paid off, manage the repayment plan in your head to pay off your new loan as soon as possible. Late or missed payments may mean a late penalty, and transfers received one month past the due date may be sent to the credit bureaus, which in turn could impact your credit in a negative way.
Does Refinancing Impact Credit?
A payday refinancing usually shows up on your credit history and it has the potential to help or hurt your report, depending on how you manage a new refinanced loan. When you first apply for a personal loan, you can expect to see a small downside trend in your FICO score, which typically occurs because of a provider’s inquiry to view your report.
However, this is only temporary, and the situation may see improvement down the road. Making timely repayments on the refinancing source of financing, keeping balances low on your other credit profiles, and avoiding more loan applications can help you trigger this increase.