It can be tempting to get a payday loan just to get some extra cash, but borrowers should know they have potential pitfalls. One of the most significant drawbacks is the consequences of taking out a high-interest loan after incurring other debt, such as student loans and medical debt.
If you’re struggling to repay these loans, taking out a payday loan could ultimately create an even larger financial burden for you. Thankfully, better repayment options can help you reduce your overall debt load and lower interest rates, making your payments more manageable. Some of these benefits of taking payday loan consolidation are detailed here for your convenience:
Lower Fees and APRs
You take out a Payday Loan Debt Consolidation mainly to get quick cash, but these loans also come with hefty fees and interest rates. The average APR on a payday loan is around 400%, which means you’ll have to pay back the entire loan plus 400% interest within two weeks.
Considering that some banks offer CDs at less than half this interest rate, it’s clear that payday loans are not a financially sound option. However, by examining your current financial situation and looking into different debt consolidation programs, there’s a chance you can reduce or eliminate your credit card debt.
Settle Multiple Loans
Some borrowers have multiple unsecured loans at different lenders, but getting one consolidated loan means only making one monthly payment on the new debt. Consolidation programs make it easier to manage your finances because you can stay on top of your bills instead of falling behind due to numerous creditors and delinquencies.
A consolidation program can get more money for the same debt. However, when you have multiple debts, you’ll have to pay more in creditor fees and interest than it would cost to consolidate your debts into one lump sum payment. This is because each creditor will charge a percentage of the total payoff amount in fees.
Easier payments
Consolidation loans allow you to make more manageable monthly payments. With payday loans, you have to pay the entire balance within two weeks, so you will pay the same amount twice, which is difficult and expensive. If you take out a consolidation loan, there will be no need for extra fees and interest since it will be a fixed payment plan without any collection costs.
In order to get yourself out of this extremely expensive debt trap, it is better to consider getting payday loan consolidation as an option. You can visit a local bank and see if they give out loans to you. You can also check online to see if other banks will help you with a loan.
Avoid Wage Garnishment and Delinquency
Getting a payday or another type of high-interest loan can lead to wage garnishment, especially if you fail to pay back the money on time. By consolidating your other debts, you will avoid this because it is considered as one large debt with a lower interest rate instead of multiple small ones.
You can also avoid other kinds of penalties and fees related to late payments by repaying your loans on time once you transfer them into one consolidated loan. However, considering the high-interest rates charged by payday loans, it’s best to steer clear of these payday loans in the first place.
Affordable & Predictable Monthly Repayments
One of the biggest benefits of getting a consolidation loan is setting up an affordable repayment plan with fixed monthly payments. As noted by many financial experts, 94% of payday loans are renewed within 14 days due to their high-interest rates.
But with a Payday Loan Debt Consolidation, you can avail yourself of a lower interest rate, determining your monthly payments. Additionally, consolidating your payday loans gives you months and even years for repayment without getting ripped off with heavy interest. You will get a fixed monthly repayment term that will make you financially stable.
Fewer Interest Rates
The interest rate on each of your debts has to be considered when deciding whether to consolidate or not since it will affect the total amount you will pay back. However, consolidation programs only have a single interest rate to pay off all your debts.
In addition, borrowers will not face any type of penalty or loss if they default on their consolidated loan. Most loans do not allow borrowers to declare bankruptcy if they cannot pay off their debt because they’ll continue to make payments despite filing for relief.
To Sum Up!
A consolidation loan allows you to take advantage of competitive rates from multiple lenders, which will give you more money than a single lender would cost. Consolidating your debts will also reduce your monthly payments, help you avoid collections or other penalties, and make it easier for you to manage your finances.