What Exactly Is Payday Loan Consolidation?
Loans from payday lenders may seem like a quick and easy solution to your financial woes, but they often lead to even more serious difficulties down the road. Consolidating loans is an option if you have many payday loans and cannot make payments. Consolidating high-interest debt into one manageable monthly payment is one of the main benefits of a debt consolidation loan.
Payday loans are short-term loans that are often due within a few weeks. However, many borrowers cannot repay their loans fully by the due date. The typical time it takes to repay a payday loan is many months, rather than the initially anticipated couple of weeks.
Let’s pretend you go to a payday lending place and ask for a $300 loan with a two-week repayment period. The financing fee for this loan is $50, charged by the lender. If you pay off your loan in full within 14 days, the annual percentage rate (APR) will be 434%. Lenders may grant additional time if you need more than two weeks to settle an invoice; however, doing so may result in additional fees. Taking out many payday loans at once is a surefire way to spiral further into debt. The average borrower takes out ten payday loans, costing them a fortune in interest and fees.
To get out of the vicious cycle of debt, consolidating your payday loans into one new loan may be the best option. You’ll be able to spread the cost of paying off your debt over a longer period in more manageable chunks.
Can I Consolidate Multiple Payday Loans into One?
The main advantage of payday loan consolidation is that it allows you to consolidate multiple high-interest payday loans into one loan with a more manageable interest rate. This results in substantial savings for the borrower throughout the loan. Typically, this method entails borrowing money for oneself from a bank, credit union, or another lender. It’s common for lenders to provide borrowers one to five years to repay personal loans.
According to data from the Federal Reserve, the average annual percentage rate (APR) for a personal loan issued from a bank in May 2021 was 9.58%. Compare that to the standard interest rate on a payday loan, and you’ll see big savings.
Cash advance lenders rarely, if ever, look at a borrower’s credit history. Since borrowers with poor credit histories are often told they are not qualified for a payday consolidation loan, the availability of payday loans may seem like a good alternative. However, it’s also possible that this is not the case.
Consolidating debts may be possible even if you have a low credit score. Your credit score may cause the interest rate offered to you to be lower than it would be for someone with a higher score. Debt consolidation may be your greatest option, and PaydayNow is the place to get it.
Consider getting an alternative payday loan (PAL) from a credit union if you do not qualify for a conventional consolidation loan. High-interest payday loans can be consolidated and repaid with the help of a PAL, which has an APR ceiling of 28%. There is often a six-month grace period for paying off a PAL from a credit union.
Can I expect a drop in my credit score if I consolidate my payday loans?
However, a payday consolidation loan is more likely to show up in your credit history than a traditional payday loan. How you manage the new financial responsibilities that the consolidation loan brings could either help or hurt your credit score.
When you apply for a payday consolidation loan for the first time, you should expect a temporary but minor dip in your credit score. However, this is just a temporary adjustment. As a result of a lender’s request to view your credit report and credit score, a “hard inquiry” is recorded in your credit file. A consolidation loan from a payday lender may shorten the average age of your accounts, which could hurt your credit rating. This could potentially lower your grade.
On the other hand, your performance may get better as time goes on. Making on-time consolidation loan payments, maintaining low balances across your existing credit accounts, and refraining from applying for new lines of credit will all help contribute to this rise. Payday loans carry extremely high-interest rates. However, debt consolidation can help you escape that burden. You may cut costs and simplify your monthly debt payments with this strategy.
When is it a good idea to consolidate payday loans using PaydayNow services?
If you are eligible for a personal loan with a lower interest rate than the rate you are presently paying on your payday debts and can afford the monthly installments, consolidating your payday loans may be a smart alternative.
Many financial experts have deemed payday loans undesirable because of the high annual percentage rates (APRs) that are frequently above 400%.
Personal loan APRs can sometimes be extremely high, up to 36%; this is a major decrease from the triple-digit rates that were common in the past. Consumer advocacy groups recommend that interest rates on loans not exceed 36 percent annually.
To add, the terms of a personal loan are more flexible. Unlike payday loans, personal loans are usually repaid over a longer period (two to seven years) and monthly. While this means that the loan term is lengthened, it could make it easier to pay off debt as the payments are lower and fixed (they won’t go up) for the course of the loan’s lifetime.
If you borrow $1,000 for three years at an interest rate of 20.5% per year, your monthly payment will be $37.42. The real interest on the borrowing will amount to about $347.
Is there anything else you can suggest besides consolidating your payday loans?
These options can help you escape payday loan debt if you cannot secure a personal loan or do not wish to consolidate your existing payday loans.
Charities offer the most credit counseling services. Those experiencing trouble keeping up with their payments can receive free credit counseling from nonprofit groups. While not all credit counselors will be able to negotiate with your payday loan companies on your behalf, they will still be able to assess your situation and advise you on how to best deal with your payday loan debt.
To avoid further debt, you may ask close friends and family for a loan if they are ready to help you in a financial emergency. To clear up any confusion concerning the due date and mode of repayment, it’s a good idea to write up a loan agreement.
Make sure you ask about extending the time it takes to pay back the loan. It’s possible that some of your creditors will work with you to create a payment plan that spreads your payments out over a longer period and reduces the total amount you owe. A lot depends on your lender and state laws, but this choice could be expensive.
If you need to consolidate many payday loans, why should you utilize PaydayNow?
PaydayNow is a great resource to look into if you need a personal loan to combine your debts. PaydayNow is a peer-to-peer lending platform that offers competitive interest rates since it operates at a far lower cost per loan than brick-and-mortar banks and credit unions. Additionally, they’ve been operating since 2007 and boast some of the finest customer satisfaction rates in the business.
