How to refinance a payday loan to pay less


This is definitely one of the best times to deal with payday loans, as the interest rate charged by banks has already reached pre – crisis levels. If you already have a current loan and your solvency profile is good, you can also take advantage of this trend to refinance it with another loan and save a considerable amount of money in interest.

While it is true that asking for a loan with a lower interest to improve the conditions of another in force is not the most common, this is one of the few options you have if you want to pay less for a loan with an excessive price. Then, with the help of the bank finance comparator we show you how you can save to the maximum if you decide to refinance a payday loan.

Maintain or shorten the repayment term

loan repayment

It is probable that, when you request the new loan, the entity offers you to modify the repayment term to return the money in more or less time than the established one. In these cases, the best thing to do is to maintain or reduce the lifetime of the consumer credit you hire, as this will accrue less interest during the same or a shorter period and therefore you will pay less.

In the following example, you can see how much money you would save if you refinanced at 10% APR credit, with $ 5,000 outstanding to be paid in four years, with an 8% APR payday loan. With the first, you would pay $ 1,087.06 in interest, while with the second you would only have to pay $ 859.12 more, so you would save $ 227.94. If the previous credit had a 1% cancellation fee, you would have to subtract its cost from savings, which would be $ 177.94.

Reduce the monthly fee does not go to account

money loan

If you decant to pay a lower rate for your new payday loan, interest will be generated for longer, so you are likely to pay more money. Taking as reference the previous case, if you returned those $ 5,000 in six years, the monthly payment would be lower, but you would pay $ 1311.92 in interest, so instead of saving, you would end up paying $ 224.86 more than if you did not refinance the credit.

Refinancing costs

Refinancing costs

When you make accounts to find out how much money you would save if you refinanced a loan with a cheaper one, it is important that you take into account the costs associated with the operation.

In general these are the expenses that you will have to face when you ask for a personal credit to cancel another:

  • Compensation for early cancellation. It is the commission that you will have to pay to the entity with which you have the current loan when you cancel it to refinance it, although not all banks will charge it. By law, in consumer loans this surcharge cannot exceed 1% of the amortized capital (or 0.5% if there is a year or less left until the term expires).
  • Study fees and opening of the new credit. It is also possible that the bank that grants you the new loan will charge you for the procedures and procedures performed during the operation.
  • Bonding expenses. If the loan you are requesting to refinance another includes related products, you must add its cost to the final price.
  • Payments to third parties. If you sign the contract for the new loan before a notary, you must also pay its fees.

In addition, as a general recommendation, it is always recommended that you carefully read the new loan contract to know what all its costs will be. This way you will avoid having to pay for unwanted expenses.

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