Many people in the US are stuck with a number of loans like credit card bills, medical bills, student loans, etc. Most of their incomes go in monthly financial commitments that make them empty by the mid of the month. How do they survive? Thanks to payday loans that come as a life saver for such people. But a taking loan is easy whereas repaying gets all the more difficult because people are already burdened by other monthly commitments, and an additional payment of payday loans makes things all the more difficult for them. As a result, they land up in a large amount of debts because they are unable to repay their loans. Whenever you are stuck in a situation like this, you can always go for payday loan consolidation.
What is payday loan consolidation?
Payday loan consolidation is a great solution for people under a large amount of debts. It is a kind of personal loan that is applied to pay off all the debts in one go. This way you can keep one loan and pay off the rest. However, how easy it may sound, but there are risks involved when it comes to payday loan consolidation. Here are some tips that you can use for consolidating your payday loans and get debt free.
Payday consolidation loans are unsecured loans. This means that people with ruptured credit history are also eligible for this loan, and they don’t have to provide any collateral to apply for it. The whole concept works on trust. It is assumed in unsecured loans that the borrower would repay the loan as agreed. Most people opt for unsecured loans to consolidate their debts. But, if you are comfortable pledging your asset with the bank, then you can also apply for secured loans.
Things to consider before taking the loan
Similar to any other loan, consolidation loans have their own risks. So, before applying keep few things in mind: –
- Total consolidation loan requirement – Calculate the amount due for all your loans and try and negotiate with lenders for an amount. If you are successful, then you might have to fewer amounts than originally planned. This will allow you to take one large loan to pay all your other loans and keep one monthly instalment, which is easy to manage.
- Negotiate for Repay time – Consolidation loan disbursement can take some days. Therefore, while making the commitment to the creditors, make sure that you choose considerable amount of time to commit to your lenders to avoid any complications later.
- Rate of interest – If you are taking an unsecured loan, then be ready to pay a higher rate of interest because unsecured loans are given without securities to the bank. Hence, the interest rates are higher. Even then, there are companies that provide these loans at low rate of interest compared to their competitors. For that you would need to do thorough research to see which financial institution is charging low rate of interest on unsecured loans.
Benefits and detriments of loan consolidation
Debt consolidation might be a good way to repay all your other loans and keep a single one because it is easy to manage. However, loan consolidation has its own advantages and disadvantages.
One recommendation: Don’t cancel all your credits cards once repaid. This is a common mistake that most of the borrowers make while repaying. Credit cards are great alternatives to cash if used systemically.
- One of the biggest advantages of secured loans is that the rate of interest is cheaper; hence the loan will be cheaper.
- The biggest danger with secured loans is that, in the case of non-payments, the creditor can sell your assets pledged to recover their loan amount. So, if you have given your house as a guarantee, then you can lose your house.
- The only big factor about getting a personal loan is your credit rating and how many assets are you ready to present to your bank. The higher the number of assets, the better is the chances of you getting your loan approved and expect higher loan amount. The only factor to consider here is that secured loans have longer repayment schedule, which means that you can be stuck with the loan for as long as 25 years.
- With unsecured loans, obviously, there are no additional guarantees. In other words, you would not lose your house or your car in the case of non-payment. On other hand, be ready to pay higher rate of interest because there are no guarantees. If your income is low and your credit history is bad, then the interest rates can be unmanageable.
- Your credit score plays a big part in getting higher amounts. This means that the better the credit score, the higher the loan amount you can secure.
So, loan consolidation is a great thing for people who are unable to manage multiple loans.