What Is Payoff?
Payoff is an online lending company who specializes in refinancing credit card debt. They claim to offer competitive rates and, according to their site, they don’t charge any extra fees aside from a one-time fee you pay to get the loan started.
The company is one of many who has entered the online lending space in the past seven or eight years. Some other popular lenders are SoFi, Prosper, and Earnest. However, among those lenders, Payoff is the only one who specializes in credit card debt.
The current economy is ripe for new credit card lenders to come into the market, too. According to the latest data from the New York Federal Reserve, Americans collectively hold more than $1 trillion in credit card debt.
The company is based in Costa Mesa, Calif., and is led by Scott Saunders, a Columbia Business School grad.
Now that you’ve got a little bit of background about who Payoff is and the basics of what they offer, we’re going to address the important questions you should have when you consider using a lender:
- Who can apply?
- What types of loans do they offer?
- Which fees do they charge?
- How do they compare to the competition?
Once we answer those questions, we’ll wrap up our review by talking with you about the company’s pros, cons and who we think might be a good fit for Prosper.
Who Can Apply?
This question is a really important one because Payoff has very specific requirements for the types of people who can apply to refinance their credit card debt.
Here are the parameters we found on their site:
- FICO score of at least 650
- Debt-to-income ratio below 50%
- Three years of credit history
- No 90-day delinquencies, charge-offs or collections accounts in the past year
- You have credit accounts
- You haven’t opened more than one installment account (fixed-payment loan) in the past year
Basically, Payoff wants to make sure you have average to good credit scores and an established credit history that doesn’t have any recent red flags like a payment that was 90 days late or worse.
Debt-to-income differs based on the lender but, according to a Payoff phone rep, they calculate it by dividing all your credit card balances by your yearly income. If that number is less than 50%, then you meet the DTI requirement.
If you can pass all these benchmarks, then there’s a good chance that you could be approved for a loan with Payoff. What will that loan look like? That’s what we’re going to cover in the next section.
Pro tip: Filling out a Payoff application requires personal information and a soft credit check. The hard check (drops your score 1-2 points) only happens after you agree to the loan terms.
What Types of Loans Does Payoff Offer?
The loans that Payoff gives vary based on how long you have to repay them, the origination fee (more on that later) you’re charged and the amount you borrow.
Here are the various loan amounts, percentage rates, and repayment terms you get:
- Loan amounts of $5,000 to $35,000
- Repayment periods of 24, 36, 48 and 60 months
- Interest rates between 5.94% and 24.40%
We spoke with a Payoff rep over the phone who told us that the 5.94% rate is only available for two- and three-year loans.
As for your repayment period and loan amount, that will be determined by your overall financial picture. The advantage here, though, is that it should be easier to get your loan because it’s replacing existing debt, not adding to it.
During the application process, you’ll be able to choose the repayment period you want but that’s not a guarantee that you’ll get it.
While Payoff will set the terms for your loan, the money for that loan is actually coming from one of four “lending partners” the company uses to fund the credit card refinancing: Alliant, First Electronic Bank, First Tech Federal Credit Union and Technology Credit Union.
Basically, Payoff gets your application, figures out how much they want to lend and they turn to their lending partners to get money. This is pretty common.
They make money by taking home the difference between what they paid the lending partner for your loan and what they earn from your interest payments and origination fee.
You’re only going to be charged one fee for your refinancing and that’s going to be an origination fee. This is something that most lenders charge to cover the cost of processing your loan.
The Payoff origination fee ranges from 2% to 5% depending on how long your loan is:
- 2-year repayment: 2%
- 3-year repayment: 3%
- 4-year repayment: 4%
- 5-year repayment: 5%
As you can see, you’re paying one percentage point for every year of your repayment. The origination fee isn’t paid out of pocket; it’s paid from your loan.
If your loan is $10,000 and your origination fee is 3%, then you’ll pay $300. That fee is then calculated into your APR, which is why Payoff lists an APR next to their interest rates. APR takes into account any fees you pay in addition to the interest rate you get.
How Does Payoff Compare to Other Lenders?
We’ve reviewed several different lenders that offer products similar to Payoff:
|APR||5.94% - 24.40%||4.99% - 29.99%||5.99% - 36%|
|Origination Fee||2%-5%||0% - 5%||0% - 4.95%|
|Repayment Length||2 - 5 years||2 - 5 Years||3 - 5 Years|
|Loan Amount||$5K - $35K||$10K - $35K||$2K - $35K|
Compared to the other lenders we listed here, Payoff presents one distinct advantage: loans for less than $10K. This presents a huge advantage to someone with less than $10,000 in credit card debt who is looking for a site that can get them a better interest rate.
As far as interest rates go, Payoff slides in front of Prosper for second place but lags behind FreedomPlus. It’s important to point out, though, that while Payoff’s low-end APR is about 1% higher than FreedomPlus, its highest APR is more than 5% lower than FreedomPlus and nearly 12% lower than Prosper’s highest APR.
Among these three companies, we think that Payoff offers the better interest rates for people with lower scores who may get higher rates if they went with the other two lenders.
The downside to Payoff, as compared to the other companies, is that, according to their website, they’re always going to charge an origination fee whereas FreedomPlus and Prosper will give out loans without a fee.
The Final Word: Pros, Cons and Who Payoff Is Good For
Based on our research of Payoff, we think it has some clear advantages and disadvantages.
On the good side of things, we like how they make loans simple for borrowers. You fill out an application and they tell you the various loan terms, interest rates and origination fees they can offer you.
If you don’t like them, you can walk away without getting a credit check on your credit history.
If you like what you see because your interest rate is lower than what’s on your current cards, you get to transfer those balances to Payoff and, because your credit card balances are now at zero, you should see your credit score jump well into the double digits – an average of 40%, Payoff told us over the phone.
The downside to the site is that you can’t get loans with no origination fees like you can with FreedomPlus or Prosper. However, getting those no-fee loans will most likely require excellent credit scores.
In our opinion, we believe that Payoff is a solid choice for those who have balances on their credit cards and are looking for a way to consolidate their debt at a lower interest rate than what they’re currently paying.
We see this product being good for you if you have older balances on cards that you obtained when your credit scores were in the mid-600’s and, since then, your scores have crept up above 700.
If that’s you, then there’s a really good chance that you can get a lower rate with Payoff. And consider this: transferring balances between credit cards usually incurs a 3% - 5% transfer fee, which is on-par with what Payoff offers.
The big difference between transferring a balance to a credit card is that you’ll most likely get a period of 0% interest. However, these cards present some issues that you won’t have with Payoff.
First, Citi cards (Double Cash, Simplicity) may raise your interest rate to 29.99% if you make a single late payment, something that won’t happen with Payoff.
Second, you won’t know your credit limit until you’ve already been approved for the card, which means you could get a credit limit that’s actually lower than the balance you want to transfer.
Payoff will tell you the terms of your loan before you accept it, not after.
While not every credit card debt is the result of poor budgeting or spending habits, many times, we believe it is. We’ve written a helpful guide to show you how making a budget can strengthen your finances through controlling and eliminating debt.
Over time, paying down your debt is a beneficial practice because it frees up money and it raises your credit scores. Better scores mean that, down the road, you can get better rates on loans and save hundreds or thousands of dollars.