How Payday Loan Consolidation Works?
Have you been overwhelmed and struggling to cope with different debt repayments every month? Or maybe your interest rates are above average and debts cost you a lot of money?
If you answered yes to one or both questions, payday loan consolidation may seem an attractive option in such situations. However, it is important to understand how debt consolidation works, and be sure that if you decide to use it, it will benefit you!
What are payday loan consolidation?
Debt consolidation is the act of taking out a new loan to pay off other obligations and consumer debts. Several debts are combined into one larger obligation, such as a loan, with more favorable repayment terms, such as a reduced interest rate, a lower monthly payment, or both. Student loan debt, credit card debt, and other liabilities can be resolved through payday loan debt consolidation.
How does this service work?
The main reason companies offer debt consolidation loans to individuals is to help them refinance some unsecured debts into a single monthly fee. The main purpose of these services is to reduce the overall debt burden by reducing interest rates.
It is the right time to consolidate your debts when:
- you have run out of cash;
- you use the last credit card to pay monthly payments;
- you often forget to pay bills
- the financial services call you almost every day;
- you often pay for late payment;
- you can’t cover multiple payments at once.
If you find yourself in such a situation, you may use the form below to find the best payday loan for consolidation or any other purpose.
Types of payday loan consolidation
- Collateral — implies the availability of collateral. The borrower must provide liquid property as collateral to consolidate the debt. The loan is issued at a low interest rate. After encumbrance is imposed on tangible assets, there is a risk of loss of mortgaged property in case of non-fulfillment of credit obligations.
- Unsecured — provided without collateral and resembles a consumer loan for any needs. Consideration of the application takes longer, because the client needs to confirm his solvency. According to the updated lending program, the interest rate increases, and the amount issued does not exceed the total amount of combined loans.
Advantages and disadvantages
In the global banking sector, consolidation is carried out quite often, it is provided by intermediary organizations. Such a procedure has the following advantages:
- Easier management – one account instead of several;
- Interest rate reduction;
- Reduction of monthly payment;
- Reduction of the total overpayment.
But experts also highlight the disadvantages of such a solution:
- The final overpayment turns out to be higher than for individual loans;
- Cases of fraud and non-fulfillment of obligations by intermediaries are not uncommon.
Does debt consolidation harm the credit rating?
In the short term, your credit rating may decrease if you decide to consolidate your debt. This is because you open a new credit line and transfer a large debt to it.
Depending on how long it takes your creditors to update the credit bureau data, your credit report may temporarily display both your multiple debt accounts and your newly consolidated debt. These balances can be displayed until it is reported that the balances on many of your debt accounts have been settled by a consolidated account.
In addition, a request to open a new credit line through which you consolidate your debt may lead to a temporary decrease in your credit rating.
Is debt consolidation the same as debt repayment?
Payday loan consolidation is not the same as debt repayment. When paying off a debt, you enter into an agreement with your creditors to pay less than you owe. This payment will be made in the form of a one-time payment.
Legally, creditors are not authorized to enter into debt settlement negotiations, but they may be open to doing so if they can repay a certain amount of their money.
Debt repayment can also affect your credit score. They will also inform you that your bill is “paid less than agreed”, which remains on your credit report for 7 years.
Any change in the terms of the original loan entails risks. Consolidation is no exception. However, a well-executed payday consolidation loan will allow you to find a real way out of a difficult financial situation. The predominance of advantages over disadvantages contributes to the growing popularity of this service among the population. Consolidation in the presence of several loans will allow borrowers to get rid of problematic obligations with minimal losses and maintaining an impeccable reputation.
Tags: consolidation loan, debt consolidation loan, finance, payday loans