Payday loans have become a common phenomenon in our daily lives. Reports from the Canadian Payday Loan Association show that close to 2 million Canadians borrow payday loans each year. This does not come as a surprise since these loans are easily accessible.
The problem comes in the loan repayment. Even though they have a lower loan limit of $1,500, the high interest and short repayment period may make it difficult to pay them in time.
Guess what! If you will not succeed to compensate them, the lenders can:
- Charge an additional cost for late payments.
- Constantly contact you through calls and emails which is annoying.
- Contact the family members or friends that you set as references in the application leading to more embarrassments.
- Reach out to a collection agency that will negatively impact your credit report.
- Sue you for default.
Since you don’t want any of these consequences, you may be wondering if consolidating the payday will help or not. Let’s dig into it.
How people typically paid payday loans off
What Is Debt Consolidation?
Debt consolidation allows you to combine your existing loans into a single installment type of loan. These loans include credit cards, payday loans, unsecured personal loans, student loans, and many others.
But what if you have only payday loans as your debts? Well, here is the good news. You can still consolidate the payday loans only. A personal loan is mostly known for this role. The loan can be accessed from physical banks, licensed online lenders, and credit unions.
How Does Debt Consolidation Work?
To apply for the loan consolidation, you’ll have to choose a suitable lender for that role. During the loan application, you will be issued some forms to fill while the required documents are being checked. These documents vary with the lender. It’s a good thing to check them on the lender’s official website before applying for the loan.
Once you fill the form and issue the required documents, you’ll wait for some hours or minutes for a response. In case of approval, the personal loan company will contact the payday lenders and other loan lenders you are associated with and clear all the debts.
That means you’ll be left with only one debt to deal with. How sweet is that?
Debts like the payday loans for Winnipeg residents can be secured using a personal consolidation loan. If you are completely sure that you’ll pay the loan in time, this can be a great way to lower the interest rates.
Personal loan interest ranges from 6% to 36% depending on factors like the lender, presence of collateral, credit score, and the repayment term. Hence, securing a loan can lower your interests.
This can also be an almost sure path of getting the loan even if you have a bad credit report. As I mentioned earlier, take this option if you are sure that you’ll repay the loan in time to avoid losing your house or property used as security.
Source: visual.ly
Pros of Consolidating Payday Loans
Normally leads to a lesser interest rate
Did you know that the annual rate of payday loans is more than 400%? Don’t be that shocked, huh! Most payday loans charge between $15 to $30 for every $100 you borrow. That’s pretty much if you know the calculations.
Personal loans normally charge a relatively lower interest compared to payday loans.
You can take a secured loan type
Personal consolidation loans can be secured using your homes, business property, or other valuable material you may have. Talk to your preferred lender about the kind of security he/she may accept.
Securing the loan will lead to lower interests.
The consolidation loans have flexible repayment terms
Personal loan terms range from 6 months to 84 months. You can choose the term that is best suited to your needs and budget.
One thing you can keep in mind is that long terms loans have a lower monthly interest than short-term loans. But in the long run, you’ll end up paying more for the long-term loans compared to short-term ones due to the long repayment period.
Help in relieving personal stress
Imagine having, let’s say 5 different high-interest debts all waiting to be paid by you. It’s possible to forget some of them and miss the deadlines which leads to additional late payment fees. What a very stressful life.
Now imagine, combining all those loans into a single low-interest loan. That is a stress reliever. Now you can have adequate time to pay the single loan.
Guards your credit history
Having multiple credits makes it hard to manage them hence may lead to late payments or defaults. This will create a negative impact on your credit report making it hard to borrow loans in the future.
Cons of Consolidating Payday Loans
You still have an outstanding loan to pay
Even though the interest rates are low or the number of loans has been reduced, you still have a loan to pay with interest.
You’ll risk losing your property in case of a secured loan
Defaulting the payments means that the lender will take whatever property you used as security and, therefore, lose possession.
The loan can negatively affect your credit report
Late payments and defaults will leave a negative mark on your credit report.
Is It Advisable to Take a Consolidation Loan for Payday Loans?
If it’s difficult to pay the multiple payday loans in time or you feel like the loans have very high interest, consolidating the loans is recommendable. Actually, it is a good idea to consolidate multiple loans as this makes them manageable.
FAQS
How can I know if an online payday lender is legit?
A payday lender should have the following features:
- Licensed by the ministry.
- Have a professional-looking website with HTTPS and the lock feature for data encryption.
- Disclose all information about the loan on the website including interest rates.
If a lender doesn’t have the above features, it may be wise to run away from them.
What are other ways of dealing with payday loans?
If you are unable to pay the loan back in time, you can:
- Seek advice from a credit counselor on how to deal with the situation.
- Get a Debt Management program.
- Ask for an extension in the repayment period.
- Apply for Consumer Proposal.
In general, consolidating your payday loans will greatly help in managing them efficiently.
https://www.canada.ca/en/financial-consumer-agency/programs/research/payday-loans-market-trends.html
