How to convert a payday loan to an installment loan

September 25, 2023
Direct Lender, Installment Loans

Payday loans are short-term, high-interest loans that are meant to be repaid on your next payday. However, sometimes you may not be able to pay back the full amount on time, or you may need more time to repay the loan. In that case, you may want to convert your payday loan to an installment loan, which is a longer-term, lower-interest loan that allows you to make smaller monthly payments.

In this post, we will explain how to convert a payday loan to an installment loan, what are the benefits and drawbacks of doing so, and what are some alternatives to consider.

How to convert a payday loan to an installment loan

The process of converting a payday loan to an installment loan may vary depending on your lender, your state laws, and your financial situation. However, here are some general steps that you can follow:

Contact your payday lender as soon as possible and explain that you are having trouble repaying the loan. Ask them if they offer an extended payment plan (EPP) or a rollover option that allows you to convert your payday loan to an installment loan.
If your lender agrees, review the terms and conditions of the new loan carefully. Make sure you understand the interest rate, the fees, the repayment schedule, and the consequences of defaulting on the loan.
Sign the new loan agreement and start making your monthly payments on time. Try to pay more than the minimum amount whenever possible to reduce the interest charges and pay off the loan faster.
If your lender does not agree, or if their terms are not favorable, look for other lenders who may offer better deals. You can use online platforms that connect borrowers with installment lenders who accept payday loan debt. However, be careful of scams and predatory lenders who may charge exorbitant fees or hidden costs.
Alternatively, you can seek help from a nonprofit credit counseling agency that can negotiate with your payday lender on your behalf and help you set up a debt management plan. This way, you can consolidate your payday loan with other debts and pay them off with lower interest rates and more affordable monthly payments.

Benefits and drawbacks of converting a payday loan to an installment loan

Converting a payday loan to an installment loan can have some benefits and drawbacks depending on your situation. Here are some of them:

Benefits

You can lower your interest rate and save money in the long run. Payday loans typically have annual percentage rates (APRs) of 300% or more, while installment loans usually have APRs of 36% or less.
You can reduce your monthly payments and ease your budget. Payday loans require you to pay back the full amount plus interest and fees in one lump sum, which can be difficult to afford. Installment loans allow you to spread out your payments over several months or years, which can make them more manageable.
You can improve your credit score and financial health. Payday loans do not report to credit bureaus, so they do not affect your credit score. However, they can hurt your credit score if you default on them or if they lead to overdraft fees or collection actions. Installment loans do report to credit bureaus, so they can boost your credit score if you pay them on time and in full.

Drawbacks

You may end up paying more interest and fees in total. Even though installment loans have lower interest rates than payday loans, they also have longer repayment terms. This means that you may end up paying more interest and fees over the life of the loan than if you had paid off the payday loan in one go.
You may get trapped in a cycle of debt. Converting a payday loan to an installment loan does not solve the underlying problem of why you needed the payday loan in the first place. If you do not address your income and expenses, budgeting and saving habits, or emergency fund needs, you may find yourself in need of another payday loan or another installment loan in the future. This can create a cycle of debt that is hard to break.
You may damage your credit score and financial health. Installment loans can also hurt your credit score if you miss payments, default on the loan, or take on too much debt. Moreover, taking out more loans than you can afford can worsen your financial situation and increase your stress level.

Alternatives to converting a payday loan to an installment loan

Before you decide to convert a payday loan to an installment loan, you should consider some alternatives that may be better for your financial well-being. Here are some of them:

Pay off the payday loan as soon as possible. The best way to get out of a payday loan is to pay it off in full as soon as you can. This will save you money on interest and fees and free up your cash flow for other needs.
Ask for an advance from your employer or a family member or friend. If you need some extra money to pay off the payday loan, you can ask your employer for an advance on your next paycheck or a family member or friend for a loan. However, make sure you repay them as soon as possible and do not make it a habit.
Seek assistance from a local charity or community organization. There may be some local charities or community organizations that offer financial assistance or counseling to people who are struggling with payday loans. You can contact them and see if they can help you with your situation.
Apply for a personal loan from a bank, credit union, or online lender. If you have a good credit score and a steady income, you may qualify for a personal loan from a bank, credit union, or online lender. A personal loan can have lower interest rates and more flexible repayment terms than a payday loan or an installment loan. However, you should compare the offers from different lenders and choose the one that suits your needs and budget.

Conclusion

Payday loans are expensive and risky forms of borrowing that can lead to serious financial problems if not repaid on time. Converting a payday loan to an installment loan can be a way to lower your interest rate and monthly payments, but it can also have some drawbacks and risks. Therefore, you should weigh the pros and cons carefully and consider some alternatives before making a decision.

Frequently Asked Questions

1. What is a payday loan?

A payday loan is a short-term loan that is typically due on your next payday. It is usually for a small amount, such as a few hundred dollars, and is intended to provide quick cash to cover unexpected expenses.

2. What is an installment loan?

An installment loan is a type of loan that is repaid over time in regular monthly installments. It is usually for a larger amount, such as a few thousand dollars, and can have a longer repayment period compared to a payday loan.

3. What are the key differences between payday loans and installment loans?

The main differences between payday loans and installment loans include the loan amount, repayment terms, and fees. Payday loans are typically for smaller amounts and must be repaid in full on your next payday, while installment loans are for larger amounts and can be repaid over a longer period of time in regular installments.

4. What are the risks associated with payday loans?

Payday loans often come with high fees and interest rates, which can make them difficult to repay. This can lead to a cycle of debt where borrowers take out additional loans to cover the original loan, resulting in even more fees and interest charges. Failing to repay a payday loan can also negatively impact your credit and lead to collections efforts.

5. How much can I borrow with an installment loan?

The loan amount available through online lenders varies depending on the lender and the borrower’s financial situation. Some lenders offer small personal loans, while others may provide larger loan amounts. Lend You Cash loans amounts are up to $1000 and more.