How to refinance or consolidate payday loans.
While it is challenging to consolidate or refinance payday loans, it is possible but not common. The fact is payday loans are designed to be repaid in a single lump sum, which is why “traditional” consolidation companies rarely roll them into a new multi-year loan. The good news is there are lower-cost substitutes you can switch into that cut the interest you’re paying. Find several options below that can help you refinance / consolidate payday loans.
Option 1: Replace it with a Credit Union PAL
Many non-profit credit unions offer Payday Alternative Loans (PALs). These are small dollar loans (generally up to $2,000) with a maximum 28% APR and one to twelve months to repay. That interest rate is obviously much lower than a payday loan. Lenders must present the full APR and schedule, so you can compare apples to apples.
While a credit union is a more focused organization and are not as simple to open an account at, most people can join a credit union quickly and apply right away. Even non-PAL credit union loans are generally capped at 18% APR, though underwriting is stricter. If approved, use the proceeds to retire the payday loan in full.
Option 2: Community Development Financial Institutions (CDFIs) small dollar loans
CDFIs, which are community lenders focused on affordability and focused on under or unbanked people, have a Small Dollar Loan Program. They also focus on people with a low-income or poor FICO scores, who are often bigger users of payday loans. The CDFI loan programs allow the money to offer low-cost credit and credit-building.
The money from a CDFI can be used to retire payday debt and amortize the balance over several months. These loans are explicitly intended to replace high-cost payday products. Search for a local CDFI and ask for a “small-dollar” or “payday refinance” loan. Use this link to find a CDFI https://cdfi.org/about-cdfis/cdfi-map/.
Option 3: Nonprofit credit counseling and Debt Management Plans to consolidate loans
If your payday balance sits alongside credit cards, medical debt and other past due bills, a nonprofit credit counseling agency can consolidate your payments into a Debt Management Plan (DMP). Counselors don’t usually reduce principal, but they can often lower interest rates on participating debts and create one monthly payment. For reputable help, contact the National Foundation for Credit Counseling at 800-388-2227 or the Financial Counseling Association of America at 800-450-1794 or look here for non-profit credit counseling agencies either nationwide or in your state.
Some DMPs will include certain installment lenders, such as title loan or payday lenders. Even when a payday lender won’t enroll, the counselor can help you find a way to consolidate/refi the loan, set up a structured payoff plus a budget that stops the re-borrowing cycle.
Option 4: Use a no-cost Extended Payment Plan (EPP) where available
Many states require lenders to offer Extended Payment Plans for a payday loan. This means no new fees or an multiple installments. This is a form of refinance if you meet the state’s criteria (for example, after a set number of consecutive loans). Industry members of the Community Financial Services Association also advertise an EPP option, though state law controls whether and how it applies. Ask your lender, in writing, for an EPP and cite your state law if applicable with more information on the government consumerfinance site.
Instead of rolling over the payday loan with fresh fees, you convert the balloon payment into several equal payments at the existing principal. This will have a lower interest rate. It can often be the cheapest immediate path if you can’t qualify for a replacement loan this week.
Most states have laws in places that set the maximum interest rate that a lender can charge, the maximum fees, and terms of the loan. They will also regulate how often and when any collection calls can be made to you. Click here to learn more on the laws in place for payday lenders.
There are 16 states with EPP provisions. Thirteen require lenders to offer an EPP (“shall offer”); three allow it at lender discretion (“may offer”). The 16 are: Alabama, Alaska, California, Delaware, Florida, Idaho, Indiana, Louisiana, Michigan, Nevada, South Carolina, Utah, Washington, Wisconsin, Wyoming, and Mississippi. California, Delaware, and Mississippi are the discretionary (“may”) states; the other 13 are mandatory.
Option 5: Consolidate your payday loans using another source of financing
The first option is to take out a different type of unsecured loan in order to consolidate your salary advance or payday loans. This will involve you taking out a personal loan or maybe use a zero or low interest rate credit card cash advance. While this can be difficult to get approved, as many borrowers may not have the best credit scores, if you are successful this in effect will work like a standard debt consolidation loan. Some of the best credit card deals out there can be options when considering this type of consolidation.
So you will need to receive the lower interest rate funds from another source, and this will allow you to pay off (or consolidate) one or multiple payday loans at usually a lower interest rate. Also, read how debt settlement works, and you can try to settle payday loans as well with that financing.
How to choose the cheapest replacement of the payday loan
Start by getting payoff quotes from your lender and your bank statement history of fees. Then compare: a PAL or bank/CDFI small-dollar loan with a clear APR and fixed term; an EPP if you can’t qualify elsewhere; or a counselor-run DMP if you have multiple debts. In addition, federal rules in 2025 also help you stop repeated ACH pulls while you set up the replacement, which can prevent overdraft and NSF cascades.
The key to being successful is that no matter which option you select, you need to be diligent and follow thru with it. So the deciding factor is really the borrower themselves. The individual needs to be committed to improving their financial situation.
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