About 12 million people in the U.S. get cash advance loans each year, according to estimates. Payday loans are definitely one of the most expensive ways to borrow money, which is something not everyone knows. Compared to the average annual percentage rate (APR) on credit cards, which is about 16%, the APR on a payday loan can easily be over 300%. When you compare this to the average APR on credit cards, which is about 16%, this is crazy.
Some people who get payday loans get stuck in a cycle of debt that seems to never end. This happens when they either extend the term of their first loan because they can’t make the payments or get a second payday loan to pay off the first one. If you find yourself taking out new payday loans over and over again, you might want to look into the possibility of getting a payday consolidation loan. If you get a consolidation loan, you might be able to get out of this debt cycle and stop having to pay payday loans’ sky-high interest rates.
What is consolidating payday loans?
Payday loans may seem like a good way to solve short-term money problems, but they can quickly lead to long-term money problems. One way to make the debt from payday loans easier to handle is to combine them. A debt consolidation loan will combine all of your loans with high-interest rates into one loan with a lower interest rate.
Despite the fact that a conventional payday loan is meant to be repaid within a few weeks, many borrowers are unable to do so. Because payday loans can frequently be renewed or extended, they can take months to repay instead of a few weeks, increasing the amount owed by the borrower.
By putting your payday loan debt into a new loan, you can get out of the debt cycle and pay off your debt in set payments over a longer period of time.
How does consolidating payday loans work?
The biggest benefit of consolidating payday loans is that it lets people save money by turning several loans with high-interest rates into one loan with a lower interest rate. To use this strategy, you usually have to apply for a personal loan from a bank, credit union, or another lender. You usually have between one and five years from the date you got the loan to pay back the money to the lender.
When people ask payday lenders for loans, the lender usually doesn’t look at the borrower’s credit history. Because of this, people with bad credit who might think they can’t get a payday consolidation loan often go to payday lenders for help. Even though it’s likely that’s not what’s going on at all.
Even if your credit score is low, it is possible that you will be approved for a consolidation loan; however, the interest rate that you will be charged may be greater than the rate that you would be charged with a higher score.
Does consolidating my payday loans hurt my credit?
The difference between a payday loan and a payday consolidation loan is that the latter frequently appears on your credit report while the former typically does not. The debt consolidation loan has the potential to either positively or negatively affect your credit, depending on how you choose to manage it.
When you apply for a payday consolidation loan for the first time, your credit score may drop for a short time. This happens because the lender did what is called a “hard inquiry” to look at your credit history or credit score. When you add the payday consolidation loan to your accounts, the average age of your accounts will go down, which could hurt your credit score.
On the other hand, your test results can improve over time. This growth can be supported by making on-time payments on the consolidation loan, keeping your other credit accounts’ balances low, and not applying for credit when it’s not necessary. If you consolidates your loans, you can get rid of the high-interest debt that comes with your payday loans, save money, and find it easier to make your monthly payments.