A payday loan is a type of short-term unsecured loan that is availed by borrowers that need urgent cash before their next payday.
These loans are due on the next payday of the borrower. Such loans are availed to to meet unexpected or urgent expenses. Payday loans are associated with very high-interest rates.
These interest rates, together with hefty fee charges make the burden too heavy for the person obtaining the loan to bear.
Due to their expensive nature, payday loans push the borrower into a never-ending cycle of cash advances that are short-term. To break free from this cycle, borrowers opt for payday loan debt consolidation.
Debt consolidation refers to the process of taking out one loan to replace other multiple debts. Payday loan debt consolidation provides borrowers with two ways to consolidate payday loans into one new installment loan.
One way is through hiring a debt consolidation agency which manages all your debts on your behalf and charging for their services.
The second approach of payday loan consolidation is where you borrow a loan from a debt consolidation company and then use this loan to pay all your outstanding cash advance loans. Below are things you must know about payday loan consolidations.
Payday loans come with hefty interest rates. This is linked to the fact that they are of an unsecured nature. Lenders fear that borrowers might default in repayment that may lead to loss of their money.
By consolidating payday loans, you pile up multiple cash advances into one single debt. With this single debt, you have the advantage of paying an overall lower interest rate compared to paying several individual loans with outrageous interest rates.
At some point in life, some people are bound to go through financial difficulties. Most people approach lending organizations which extend financial aid and they get into the agreement on the interest rates, fees and repayment period. However, you need to be alert as there are many companies out there that are not genuine.
Some so-called debt consolidation companies are not even in the consolidation business. These companies extort money from borrowers by charging fees and rates that are unreasonably high.
borrower should, therefore, be very careful by thoroughly checking the websites of consolidation companies, making sure they are licensed before getting into an agreement with them.
Upon approaching a consolidation company, the company negotiates on your behalf with the payday lenders that they may reduce the penalty due to delay in payments or waive it off altogether.
Payday loan debt consolidation enables the borrower to make just one payment every month. This is made possible since the borrower pays a single payment to the consolidation company which then distributes this money to payday lenders at an agreed rate.
It saves the borrower the trouble of having to make multiple payments to multiple lenders every month.
In the application of a payday loan through an online platform, you receive your money directly to your account. Repayment of payday loans is also electronically done by the payday lender during your pay day.
This is a major pitfall as it may force the borrower to get into more debt if there are not enough money in his account.
The borrower is then forced to get a bank overdraft to finance other bills. By consolidating your payday loans, you remove aggressive payday lenders from your bank account and you are now left to have control over it.
In a case of delay in payments, your lenders will automatically make harassing calls to remind you to make payments.
Payday loan consolidation lets the debt consolidation company to answer these calls on your behalf. Payday loan debt consolidation successfully creates a barrier between you and your aggressive debtors.
Payday loans are expensive, which is why many borrowers do not make payments on time or sometimes default in making repayments. This delay and default have a negative impact on the borrower’s credit score which eventually hurts his creditworthiness.
With a poor credit score, lenders may be reluctant to extend loans with the fear that they may not make payments.
Payday loan consolidation may help improve your credit score in the long run. By being current with all your debts with a consolidation plan, this will ultimately raise your credit score, hence redeeming you from bad credit.
Consolidation companies charge a fee for their services. This fee is usually a certain percentage of the total outstanding debt that they manage for you.
As a borrower who is in dire need to consolidate payday loans, you should thoroughly review their fees before getting into an agreement with them. You should opt for fair and affordable fees that will help you slowly clear your loans instead of sinking you into more debt.
Many borrowers think that by consolidating their payday loans, they are relieved from the legal right of having to pay up.
This is not true. Debt consolidation only seeks to make the repaying experience easier for you, reduce your stress and make it affordable for you to slowly clear all your debt. Once you have consolidated your loans using debt consolidation, you should make the necessary payments on time.
Payday loan consolidation is a solution for many who are caught in the jaws of multiple short-term cash advances. However, many other alternative borrowing options are available. There are other competing borrowing alternatives that strive to outsmart one another in the lending realm.
The borrower should thrive in this competition by checking out what policies actually favor him or her and their financial situation.
Alternatives include bankruptcy, taking out a home equity loan or a debt management plan. The borrower should carefully consider these alternatives and choose the best one that suits his needs.