When a borrower takes a payday loan with high fees, they may be overwhelmed by the struggle of repaying that loan. It may be much harder to pay as the borrower can be entangled in a cycle of debt. Most of the people who take payday loans are borrowers who were unable to pay their bills timely.
Payday loan debt relief allows borrowers to take a new loan with a lower interest rate and the liberty of setting a monthly payment limit that could be paid overtime.
What Payday Loans Entail
Payday loans are usually short-term loans for small amounts of money, around $500, and are often due on the borrower’s next payday. They are supposed to help borrowers to survive between the paychecks. Payday loans have fees that could translate to much higher annual percentage rates.
Payday loans could have adverse effects on your credit score, which could be challenging to boost later. Your monthly payments on payday loans are usually not reported to the credit bureaus; thus, there is zero chance of it boosting your credit score.
Due to the high cost involved in payday loans, only 14% of borrowers can repay their loans. Hence, many borrowers end up taking a new loan with a lower interest rate to get their finances back on track. This is called payday loan debt consolidation.
How Debt Consolidation on Payday Loan Works
Borrowers usually take loans with interest rates that are lower and use the same money to pay off debts with high interest rates. Debt consolidation is repaid over time. Unlike other loans, they have much lower interest rates and longer repayment periods, usually between 2 to 5 years.
You will need to look out for a lender who provides debt consolidation loans. Most of the online lenders usually run a prequalification analysis to evaluate if you qualify for a consolidation loan. The terms of the loan, monthly payment, and interest rate are estimated based on your credit report review. It is recommended in order to ensure that you can afford the monthly payments before applying.
Benefits of Loan Consolidation
- Reduced fees: Most consolidation loans have a lower interest rate, usually between 1 and 5 percent on the amount of loan.
- Repayment terms are flexible: The repayment period of the payday debt consolidation loans usually ranges from 12 to 84 months. However, it is a must for you to repay your loan between two to four weeks or on your next payday.
- Monthly payments are predictable: You are required to pay a specific amount of money every month until you fully pay off the loan. In cases where there is a fixed interest rate, the payments remain constant throughout the loan’s entire life.
- A credit check is required: Even though this may be viewed as a downside, the lenders of the consolidation loans are very keen to ascertain that you can actually afford the monthly payments prior to signing the loan agreement.
- Zero chances of rollovers: Upon full repayment of the loan, your loan is marked as paid off, and the account is closed. You will need to apply for a fresh loan in case you need more money.
Downsides of Payday Loan Consolidation
The relief of a payday loan sounds nice; however, you should consider the following factors before you apply for a new loan:
It is crucial to make every payment on the stipulated date. Loss of job or life hurdles could make it difficult for you to pay on time. Late or missed payments could negatively affect your credit score, and the loan consolidation lender may send debt collectors to your home. Always try to plan ahead by saving as much as possible in case of financial emergencies; Set aside an emergency fund.
Not everybody qualifies for a low-interest rate. Interest rates for payday loans range between 4 to 36 percent based on your creditworthiness. The majority of online lenders always focus on dealing with borrowers with low credit scores. It may be challenging to apply for a consolidation loan if your credit score is high.
Contact Encompass Recovery Group for Payday Loan Debt Consolidation
Payday loan consolidation could greatly help you stay afloat even in tough financial times. Why wait? Contact Encompass Recovery Group for guidance on payday consolidation loans today, and manage your finances with ease.