Housing Relief1. What is payday loan consolidation?
A process where you consolidate your payday loans under a single personal loan with a lower interest rate and a longer repayment period.
2. What makes a personal loan better than payday loans?
First, putting multiple payday loans under a single, new personal loan lets you manage such debt via one monthly payment. In other words, it’s less stressful. Second, payday loans can sometimes have triple-digit interest rates that reach 400 percent or higher. Most personal loans have APRs that top out at 36 percent. Lastly, payday loans have short repayment periods that make them harder to pay, especially if money is tight. On the other hand, personal loans have longer repayment periods that can result in lower monthly payments that fit your budget.
3. Why would you need to consolidate payday loans in the first place?
Payday loans work for some people because they offer quick cash. For others, payday loans are a nightmare due to the high interest rates and short repayment periods.
If you cannot repay a payday loan on time, you may have to roll it over. This delays repayment and gives you extra time, but it also results in a fee. As fees and high interest pile up, you could start drowning in debt due to a payday loan. So instead of continuing to roll it over and incurring new fees, you could get a cheaper personal loan to eliminate that nightmare.
4. How can you get a personal loan to consolidate your payday loans?
Personal loans usually come from banks, credit unions, or online lenders. If you’re a member of a bank or credit union, see if you can get a personal loan there first. If not, online lenders may offer you a personal loan, even if your credit is fair or bad.
Applying for a personal loan through an online lender is simple. Your goal should be to prequalify so you can see what type of loan you can get to compare rates and terms between lenders. Prequalification usually involves entering requested information in an online form. It does not pull your credit, so your score will not drop.
Once you get loan offers and start to comparison shop, you can pick the loan and lender that’s right for you. At this point, you formally apply for the personal loan by uploading the requested information and having your credit pulled. You could get approved within minutes and receive funding via bank deposit that same day.
5. What do you do once you get funds from the personal loan?
To avoid deeper debt, use those funds to pay off the payday loans immediately. This will get a massive load off your back, leaving you with a single personal loan to repay with a lower interest rate, more manageable terms, and fixed monthly payments. As you repay the personal loan on time, you can increase your credit score and save whatever cash you would have spent on the payday loan’s exorbitant fees and interest.
