It is rarely advised to seek further credit to pay off existing

It is rarely advised to seek further credit to pay off existing debts; that is unless you can secure a lower rate of interest or more favourable terms. In most situations it can also prove to be extremely difficult, especially if you don't have a particularly strong credit rating. However, despite this, it is still possible for anybody with a payday loan to use a conventional personal loan to repay it a little earlier.

So how would this work?

The most likely scenario is that you have found yourself in desperate need of cash and don't have time to wait for a decision from the bank. As payday loans are often processed in under an hour, you can get a quick answer and have the money ready to spend by the close of play that day. Essentially it's a more readily available form of credit, which is why many choose to borrow from short term lenders.

What are the likely issues?

Whenever you take out a loan or any other form of credit, that information will be shared amongst all lenders and should feature on your credit rating. As such, if you have recently taken one out and then seek a secondary loan elsewhere, this could make it very difficult to do so. In fact, unless your history is spotless and you don't have debts on store or credit cards as well as large bank overdrafts, it may even prove to be impossible.

Banks don't lend to anybody these days. Since the financial collapse in 2008, restrictions have been put in place to ensure that both the lender and borrower are better protected from bad debt. This means that they've restricted who is eligible to receive money hugely and implemented stricter rules to prevent making the same mistakes as those in the past.

All of this works against anybody who wants to get a loan to cover their outstanding payday loan, as the lender will be made aware that you have this outstanding debt and will always be able to view how recent the application was. If you make an application to increase your overdraft or to get a new credit card and are rejected, the company will often recommend that you wait for between 3 and 6 months before reapplying. The simple reason for this is at that every application involves a credit check and a rejection will invariably show up on this for a brief period, which will work against you.

Therefore, it is entirely feasible that a similar principle would be applied by banks in situations where you have successfully increased your credit or taken out a loan elsewhere. The application and acceptance would appear within your credit report, helping to steer the decision of other lenders in the future. As a result further funds may be difficult to acquire, in the short term at least.

So what are the benefits?

If you were to be accepted for a personal loan and use some of that money to repay your payday loan early, you could end up saving a few pounds. However, this is only likely to prove to be hugely beneficial if the original payday loan is having interest charged by the day, rather than at a fixed rate. As such, it wouldn't make a difference if you paid it off early or on time, although it would of course alleviate some debt.

So, in select circumstances, it may well be possible to get a regular loan to repay a payday loan, but generally it would be advised to choose one or the other. Payday loans are strictly for short term solutions, whilst your standard bank loan should only be applied for in situations where you need a significant amount, but wish to spread repayments over a number of months.

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