What is a Payday Loan?
According to the Federal Trade Commission, payday loans are a kind of money advance where creditors issue an amount to a debtor in exchange for a personal check from the receiver for the same amount, including lending fees. The quantity borrowed, and charges are normally due on the debtor’s next payday.
During this time, the payday moneylender is allowed to roll over the loan or cash the check if it’s not been settled by the prearranged deadline.
There has been public and regulatory scrutiny on Payday loans over the years due to their well-known high-interest rates, high potential for rotating debt, and unfavorable loan terms. As a matter of fact, more than a few states have disqualified payday loans, and Google lately decided to quit posting consumer ads for these loans.
No matter what kind of debt you are in, it can be tough to get out of debt. However, research shows that paying off payday loan debt is particularly tough. The Consumer Financial Protection Bureau projected that 80% of payday loans are re-borrowed in a month of their original withdrawal.
Pros and Cons of Payday Loans
If you’re considering taking out a payday loan, take a minute to assess the pros and cons :
- Fast access to cash in emergency situations
- Easy approval for a payday loan
- High-Interest rates
- Paying a payday loan is difficult
- Payday money lenders normally expect payment within two weeks of withdrawal
- Aggressive Debt collection measures
Payday Loan Consolidation
The never-ending cycle of payday loan liability can be a key challenge, owing in part to short loan terms and the high-interest rates associated with them. As a matter of fact, Pew Research Center approximates that the average payday loan receiver spends five months in a year in debt.
Payday loan consolidation is one plan that can be utilized to better handle payday loans.
The idea of payday loan debt consolidation and debt consolidation overall is quite simple. Repay your current loans with a high rate of interest using a new loan with a lower rate of interest. With this, you’re using less cash on interest over time and you’re only left to repay one loan instead of many.
It is better to consider the advantages and drawbacks of payday loan consolidation, like any other financial decision you make in your lifetime
Pros and Cons of Payday Loan Consolidation
- Possibly pay a lower rate of interest. APRs for personal loans range from 6-36%, while the regular interest rate for payday loans is 398%.
- Have a longer period to pay your loan balance. Payday loan terms are normally due on the receiver’s next payday, while personal loan repayment periods are between 12-60 months.
- You can plan and budget for loan payments better. Instead of handling payments for several loans, you can plan for one loan payment each month.
- It can be more challenging to secure a personal loan because trustworthy lenders naturally consider financial health, like your credit score, before giving funds
- Personal loans can’t be prolonged like payday loans. Once the debt has been settled, you must take out another loan if you need extra funding.
How Payday Loan Debt Consolidation Operates
You are required to first apply for a personal loan with the moneylender of your choice. If possible, the loan you’re borrowing should have a lower rate of interest than the payday loan that you’re struggling to pay off.
This is because the higher the rate of interest, the more you end up repaying on your loan. If you are qualified for the personal loan, you would basically use funds from your new personal loan to repay your current payday loans at a lower rate. After you settle the payday loan, you’ll only have the personal loan left to repay.
Payday Loan Consolidation: Step-by-Step
- Compare personal loans from several creditors
- Make an application for the loan that makes the most sense to you
- Use the money from your individual loan to pay off your other loans
- Make a strategy to pay off your personal loan
- Repay your loans
Help With Payday Loans At Encompass Recovery Group
At Encompass Recovery Group, we offer a guarantee on your debt consolidation. We negotiate with lenders and make sure that you settle what you can manage to pay for. With this, you can get out of debt quickly. Do not hesitate to start solving this problem Call us today at : (877) 769-0109