It is possible to consolidate a payday loan. However, it can be somewhat complex and especially if you have no prior knowledge of debt consolidation and how it works. This article explores the basics of payday loans and debt consolidation and how an individual could consolidate a payday loan.
What Is a Payday Loan?
A payday loan is a small loan, often $500 or less, that is typically accessible to most people, including those who might have bad credit. Each state in the US has their own rules and regulations surrounding payday loans. For example, the maximum loan amounts and repayment periods vary by state. The National Conference of States Legislatures explains in more detail specific state payday loan rules.
Often, payday loan applications may come with no credit checks. Furthermore, payday loans can often be received on the same day of applying – sometimes within minutes. These types of loans can come at a high price in terms of interest rates, especially if the borrower in question does not adhere to the terms and conditions. Paying a payday loan back late or missing a payment can lead to high fees and further debt.
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What Is Debt Consolidation?
Debt consolidation enables a borrower to move their existing debt, or debts, into a new loan. As a result, the borrower will only have one repayment per month instead of many. This process may be ideal if the new debt consolidation loan offers lower interest rates and longer repayments. Debt consolidation loans, in short, aim to provide more manageable repayment terms to help borrowers get back on track financially.
Should I Consolidate My Payday loan?
Consolidating a payday loan may seem tempting, especially if you are struggling to repay it on time and are accumulating high interest and late repayment penalty fees. Before applying for a debt consolidation loan, it is important to consider all avenues and how they will affect you financially. Reviewing the terms and conditions before accepting the debt consolidation loan is another way to see if it is right for you.
How Can I Consolidate My Payday Loan?
The process of debt consolidation is relatively straightforward. First, ensure you have calculated the total of your payday loan(s) correctly. Incorporate any origination fees that your new lender is charging. These first few steps are crucial as you will need to know how much to apply for.
Next, enquire with several lending companies that offer debt consolidation loans. Compare your options! You can apply in person or online for a debt consolidation loan. Be sure to keep track of their different interest rates, late fees and loan time frames. It is advised to choose a low interest rate and a repayment period that is well-suited to your financial situation.
The application process will vary slightly by lender. Some companies will ask potential borrowers to undergo a credit check. Others, meanwhile, may have their own set of eligibility criteria. Generally, to get a debt consolidation loan you will need to be of legal age, have a regular income and live in the US permanently.
If you are approved for the debt consolidation loan, you can then use that to repay the payday loan. Make sure to keep up with payments to avoid any added future debt.
What Are the Benefits of Consolidating a Payday Loan?
Some payday loans have high interest rates, costly late repayment fees and generally short repayment periods. As a result, many people may find payday loans difficult to manage. However, a debt consolidation loan could be useful in such scenarios. Below, find some of the benefits of consolidating a payday loan:
- Lower Interest Rates: Many debt consolidation loans will have lower interest rates. Therefore, they may be more cost-effective long term.
- Manageable Repayments: Debt consolidation loans bring all of your monthly repayments into one. Therefore, they are more manageable and can help people to become debt-free quicker in a more manageable manner.
- Helps Improve Credit Score: Though a debt consolidation loan may lower your credit score initially, it is only temporary. In time, repaying the debt consolidation loan could help rebuild a bad credit score provided it is paid on time.
Nonetheless, a debt consolidation loan may not be the best solution for everyone. If an individual is severely struggling with repaying their payday loan they must contact their direct lender as soon as possible. Likewise, seeking professional financial advice for debt worries is also advised.