Payday loan consolidation means paying off multiple insecure debts using a single loan within manageable payments.
The main aim of payday loan consolidation is to reduce the burden that comes with paying multiple loans every month.
Apart from simplifying the payments, payday loan consolidation can also get people out of a debt trap that comes with applying for multiple payday loans within a short period of time.
Consumers can consolidate their payday loans in different ways. These can be applying for a personal loan, home equity line of credit or home equity loan.
In this article, we are going to explain in detail how payday loan consolidation works, when you apply for it and how you can apply for the loan. Using a payment plan, credit counselors we can consolidate any short term loan and help you become debt free.
You can consolidate payday loans when you find yourself in a debt cycle. Payday loans are short term in nature and require payments within 2 to 4 weeks.
Actually, you have to pay the loan as soon as your next paycheck arrives. However, a payday loan lender can decide to extend this term if you are not able to pay within this time.
By doing so, the lender will only need you to pay the interest, not the whole amount. The due date is extended by a few weeks with extra interest charged on the loan.
According to the Consumer Financial Protection Bureau, up to 80% of payday loan borrowers tend to renew these loans.
If you have been in this situation, then you already know how expensive rollovers can be. They result in additional fees on top of the interest rate.
In fact, the APR for payday loans can be as high as 400%, thanks to the high interest and fee charges. So people who are already trapped in debts as a result of taking out too many payday loans can apply for payday loan consolidation.
But still, payday loan consolidation won’t prevent you from paying the additional fees and interest from your past payday loans.
Consolidation will only shield you from taking additional loans thus accumulating your payday debts. You can then pay the balance on outstanding payday loans at more convenient terms and at times, at a lower rate. Over time your credit report will improve and credit bureaus will help you obtain unsecured debt once more if you so choose.
Your bank account and checking account will not be overdrawn as long as you select a good payday loan consolidation company like KillerKash.
After consolidation, you will only have to pay the new lender and the interest rate may be lower than your original loans. This will relieve you of the burden that comes with paying too many payday loans.
Now that you already know how payday loan consolidation works, we will now look in detail at the different ways you can use to consolidate payday debts.
|Category||Personal Loan||Home equity loan||Balance transfer card||Home equity line of credit|
|Credit score requirements||585+||620+||700+||620+|
|APR||6% to 36%||4% to 8%||19%||4% to 8%|
|Funding time||1-7 business days||Over 1 month||14-24 business days||Over 1 month|
This table gives you an idea of how each of the payday loan consolidation options works. We are also going to explain what you should expect when considering any of these methods;
You can apply for personal loans when you need funds for anything, including payday loan consolidation. Most unsecured loans require a credit score of more than 585, but if you apply for a secured personal loan, it is easy to qualify even with a bad credit score.
You, however, have to provide collateral for the loan. Before getting a personal loan, you first need to check for prequalification.
This will give you a clue on the rates you can qualify for, the expected rates and the loan term. You can even compare these rates to your outstanding payday loan rates.
After this, you can send a loan application to a lender who offers the best terms.
Use the personal loan to clear your payday debts. Some personal loan lenders can even pay directly to your creditors.
It is also possible to transfer your outstanding payday loans to a credit card. If you choose this option, you will owe the credit card company and not your creditors.
The best way is to find a card with a 0% introductory APR of balance transfers. Most credit cards allow for balance transfers. In fact, even the expensive credit cards have a lower APR compared to what you can get in payday loans.
Home equity loans, just like personal loans can be used for different purposes. However, these loans are not insecure.
They require collateral, which, in this case, is your home. So if you fail to pay the loan, you may risk losing your home. On the positive side, home equity loans have a lower APR than credit cards and personal loans.
Home equity loans and home equity lines of credit HELOC work the same way. The only difference is that with HELOC, you won’t get a lump sum amount. Instead, you can borrow up to your credit limit. The loan terms are the same as those of home equity loans.
There are many benefits of payday loan consolidation. The main one is that you will save money. Come to think of it, consolidating your payday loans is far cheaper than renewing the loans which come with extra interest and fees.
Additionally, consolidating payday loans means that you will have adequate time to pay the new loan (which is usually paid in instalments) so you won’t have to worry about paying in a lump sum like for payday loans.
These are some of the reasons why payday loan consolidation is the best way to go. But this is not the only means to get out of a payday loan cycle. There are other alternatives that you can also consider, which are summarized in the table below;
|Category||Debt counseling||Debt management||Debt settlement|
|How it works||An organization can advise you on the best way to get rid of debts||An organization helps you come up with a repayment plan for your debts||You pay a lump sum amount you have and the remaining amount is written off. Mostly applies in student loans|
|When to choose||When you need professional help to get rid of debts||If you are willing to make smaller payments on your outstanding loans||When you default|
|Further sources||Debt counselling explained||Debt management explained||Debt settlement explained|
These three alternatives to payday loan consolidation work differently.
Here, you can inform your lender that you won’t afford to pay the loan anymore but can give a lump sum while the rest is written off.
Most lenders can accept this if all their efforts to recover the loan have failed. Besides, it is an easy way of solving the situation rather than the long and endless case proceedings.
Here, you have to work with an organization that offers the debt settlement program at a fee. You have to pay this organization, the payments are sent to your payday loan lenders.
The debt management company can negotiate with your lenders to lower the interest rate. However, not all debt management companies are reputable. The best way to use this program is working with a non-profit organization.
There are also organizations that advise consumers on how to get rid of payday loans. Most of these organizations offer free advice. Others can charge monthly or even a one-time fee. Beware of companies that charge too much considering that you also have a loan to pay.