A payday loan is a short-term, high interest loan that is typically due on the borrower’s next pay date. Payday loans are usually cash advances on the borrower’s personal check. For many people, payday loans can be a viable option when budget emergencies arise because they are readily available in most areas and transactions are conducted quickly over the telephone or internet.
You may have heard that there is such thing as a “Payday Loan Consolidation Program.” Depending on where you live, this program will either be offered to you by your own bank or it will require you to contact another bank which specializes in these types of deals. The maximum amount you can take out through this program is very small and is offered by financial institutions that can afford to offer it.
The Payday Loan Consolidation Program:
In order to participate in the Payday Loan Consolidation Program, you (or your bank) must go through a financial institution that offers it. After you secure a loan from this institution, they will “consolidate” the title of all your existing loans into one new title bearing the same amount; and all of the payments on that consolidated loan will be applied to pay off each individual loan as well as any fees or interest charges. This new consolidated loan is then paid off quickly with the remaining funds, thus canceling both of your previous loans (and removing them from your credit report).
Significance of Payday Loan Consolidation:
There are several reasons why you should consider consolidating your payday loans:
1. It Gets Rid of Payday Loan Fees and Interest Charges
Since the consolidation loan is a new loan, the fees and interest charges that come with your existing loans are gone; this is because they will have been “consolidated” into one new loan.
2. You Can Get a Longer Repayment Period
This is probably one of the most common incentives offered to people who take out consolidation loans. And it makes sense: if you are able to pay back your new consolidated loan in 3 months instead of just 1, then you will save a lot of money in interest charges (since payday loans charge very high rates).
3. You Can Get a Lower Repayment Amount
Since the consolidation loan is a new loan, you can choose to get an amount less than what you owe on your existing loans. This means that you can save money in interest charges by borrowing less money.
4. Your Payment Terms May Be More Flexible
Your payment terms may be more flexible for the new consolidated loan; this means that if you want to choose a later payment date, then you can.
5. You Can Pay Off Your Loans Faster and Build Credit
Consolidating your payday loans can also be a great way to build credit. Since you are now making a loan payment on time every month, your credit score will go up tremendously; and you may even get approval for other types of loans in the future.
Things to Consider:
Like all financial decisions, there are several things you should consider before taking out this kind of loan:
1. What Is the Interest Rate?
The rate of interest will vary from institution to institution; so it is important that you compare rates from different banks and lenders.
2. How Much Can I Borrow?
There are some lenders that offer an unlimited amount of money; however, if you want to stay within your budget, you should stick with a much smaller amount.
3. How Long Will It Take to Pay Back the Loan?
The length of time is important because if it takes too long, you may be tempted to bail out on the loan or take out additional money based on other pressing needs; and this would just lead to more debtors paying interest charges.
4. Will I be Able to Pay Off My Loans?
There are a lot of other needs that people have besides paying back these loans, so it’s important that you carefully assess your ability to pay. You should also make sure that the interest rate is reasonable and within your budget (so you’re not paying more than you need to).
5. What Is the Bank That Will Be Paying Interest on My Loan?
It is important that this bank has a solid reputation and good financial history; and any information that you can use to check these things out will be helpful.
We all know that payday loan consolidation are designed to help people pay some of their other debts off; however, if you really have a pressing need for the money, then taking out a consolidation loan may not be the best way out and you should ask yourself if you really have to take out this kind of loan.
These loans can be risky because if you don’t pay them off in time, then you could get in trouble with the law; and this is why it is important that you carefully assess your ability to pay back these loans before taking them on.
We all know that payday loan consolidation is a good idea but just because it’s good doesn’t mean that it’s always possible.