Payday loan consolidation

Payday loan consolidation allows you to combine multiple payday loan repayments into a new loan with one manageable monthly payment. Compared to short-term payday loans with high interest rates, debt consolidation loans can offer a longer loan term and lower APR, making it easier for you to keep up with your repayments and escape the payday debt cycle.   

6 min read
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What is a payday loan?  

A payday loan is a short-term loan typically intended for those who need to access money quickly to cover an unexpected expense that can’t wait until payday.  

As this type of loan has a short-term length, they often come with high interest rates, which can make them a more expensive option than other forms of finance.  

No matter whether you’ve used your payday loan to pay for sudden car repairs or to replace your boiler, you’ll usually be expected to pay the loan back within a few weeks.  

If you can’t make your repayments, the high interest rate applied means that payday loan balances can increase rapidly and leave you facing an affordable amount of debt.  

What can I do if I’m struggling to pay back my payday loans? 

If you’re struggling to repay your payday loans or find that you’re relying on them to fund your everyday expenses, you may wish to consider contacting the lenders directly or seeking independent expert debt advice. 

Once you’ve been in touch with your payday loan lenders, there are certain steps they must follow by law. These include directing you to free, independent debt advice, suspending debt recovery action for a reasonable period, and agreeing not to bombard you with phone calls and emails.  

TOP TIP: Keep copies of any written communications between you and your lender and take notes after each phone call.  

An independent debt adviser should always act in your best interests and help you find a debt management solution that’s suitable for your individual needs. They may also be able to negotiate with lenders on your behalf. 

If you choose to work with a debt adviser, be sure to let your payday loan lenders know so that they give you enough time to agree an affordable repayment plan. 

What is the payday loan charge cap? 

Payday loans have a mixed reputation among consumers. Known for their high interest rates, the loans were assessed by the Financial Conduct Authority (FCA) and a charge cap was introduced in 2015.  

Under these regulations, the interest and fees charged daily must not exceed 0.8% of the initial amount borrowed and your default penalties must not be more than £15. Thanks to the charge cap, you should never have to pay back more in fees and interest than your original loan amount.  


What is Continuous Payment Authority (CPA)?  

Continuous Payment Authority (CPA) is a system that allows lenders to take the money owed to them directly from your bank account. Not only can this be an unwelcome surprise, but it could also cause problems if you’re left without enough money to cover your essential bills and living costs.  

A CPA, also known as a recurring transaction, can be difficult to cancel and can lead to lenders attempting to take payments without notice. If their first attempt is declined, they may try again, but they should never attempt more than twice.  

Payday loan rollovers  

A payday loan rollover is when a lender allows you to roll the debt balance over for another month. 

This gives you more time to repay the loan but, in return, you’ll be entering into a new finance agreement that could involve additional charges and interest.  

Lenders should not offer you more than two rollovers and must also send you an information sheet with details of helpful debt advice organisations.  


What is a debt loan consolidation? 

Debt consolidation is the process of merging multiple debts into one manageable monthly repayment. Depending on your eligibility, you may be able to secure a debt consolidation loan with a lower interest rate or longer loan term (with lower repayments) than your existing payday loan debts.  

Not only can debt consolidation reduce the stress of having to deal with several different payment amounts, interest rates, and due dates, but it could also help you save money on interest and pay off your loans faster.  

Debt consolidation loans are typically unsecured, which means that they won’t be secured against an asset like your home or car.  


Pros and cons of debt consolidation 

Pros Cons
All your debts will be in one place. May not be worthwhile if you have a smaller amount of outstanding debt.
It could make your debt more manageable and help you stick to a budget. Your interest rate may increase after the low rate or 0% period ends. 
You may have a lower monthly repayment (but may pay more in interest). Your interest rate may be higher if you don’t have a strong credit rating. 
Your credit rating may improve if you keep up with your repayments. Your debt may increase if you continue to spend after consolidating credit to qualify. 
Your home will not be at risk. Your financial situation could be harmed if you fail to keep up with your repayments. 


Can payday loans be consolidated?  

Payday loans, like other types of debt, can be consolidated into one payment through a debt consolidation loan. If you’re struggling to pay back multiple payday loans, you can apply for a debt consolidation loan with new terms that you can use to pay off your existing debt.  

This type of debt management can be especially effective for those who are struggling with payday loan debt as many consolidation loans are designed for long-term use with longer terms and lower APR rates than short-term payday loans. This can make your debt more manageable and could even decrease the amount of interest you pay overall.  


How does payday loan consolidation affect my credit score?  

Payday loan consolidation can affect your credit score in different ways, depending on your actions and financial circumstances. If you’ve had to rely on payday loans and have multiple debts on your credit report, lenders could be concerned that you have trouble managing your finances and could be a risky borrower. Any missed payments may also harm your score.  

When you apply for finance with a reputable payday loan consolidation company, a hard search will be carried out on your credit report. This hard search, combined with the large new debt being added to your report, may temporarily impact your credit score. 

However, switching from multiple payday loans to a debt consolidation loan with a lower rate of interest or longer loan term could mean that you have more affordable repayments and can avoid the payday loan trap. If you stay on top of your finances during your debt consolidation loan term and keep up with your repayments, you could slowly improve your credit score.  

Successfully managing a debt consolidation loan can show that you can handle a long-term financial commitment and that you can be a reliable borrower, as well as decreasing your total credit utilisation as you use the loan to repay your payday loan debt.   

If you’re struggling with debt, you don’t have to suffer in silence. Free, independent financial advice and support is available. Visit Money Wellness, StepChange, Citizens Advice, National Debtline, or Money Helper to find out more.  

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Intelligent Lending Ltd is credit broker, working with a panel of lenders. Homeowner loans are secured against your home.

Disclaimer: All information and links are correct at the time of publishing.