Payday loans are usually expensive because the fees are high. They don’t come with favorable terms and if you don’t take care, you will be trapped in a vicious debt cycle where you repay your loan for a very long period.
Personal loans are better than payday loans in several aspects. Personal loans usually have lower interest rates and they also have better terms. At least, you will know the total amount you will pay at the end of each month.
Payday loans are easy to access especially if you need cash urgently. But, if you don’t take care, you will get stuck in a debt cycle. You will end up paying more fees as well. With most people, they end up taking another loan after repaying the previous one because the cash they have left will not sustain them for the month. They continue this for months until they are finally able to squeeze some money to completely pay off the debt.
If you get stuck in a payday debt cycle, you can use a personal loan to consolidate your debts. The Payday loan consolidation will help you to break free from the cycle. Let’s see how this works. We will also talk about the benefits of consolidating your debts with a personal loan.
Debt consolidation helps you to bring together several high-interest rate loans and unsecured loans into one loan. The good thing is that you are likely to access the consolidation loan at a lower interest rate. This will reduce your monthly interest charges, help you to save money, and pay off your debt quickly.
The process of consolidating your payday loan is pretty simple. You need to apply for a personal loan. When it gets approved, you use the funds to pay off your debts. Then you can focus on repaying your personal loan.
When applying for a personal loan, you will need to provide certain information. You will need to provide personal information such as name, contact number, and address. You will also be required to provide some financial information. Some lenders will also ask for your pay stubs, tax returns, and utility bills.
Before you decide to consolidate your debts with a personal loan, you need to review your personal finances. You should also develop a plan to help you stay on track. A plan that will help you to repay your monthly payments so that you can be consistent. If you don’t do this, you may end up being worse off. In the sense that, if you don’t discipline yourself financially, you will incur more debts, you will also have a hard time paying off your personal loan and that will leave you in more debt.
The primary benefit of consolidating this type of loan is to help you manage your debt. Other benefits include the following.
The fees on personal loans are usually lower than those on payday loans. You can pay up to 400% in interest rates for payday loans while the rate for personal loans ranges from 4% to 36%.
With personal loans, you can choose a payment term that suits you. The loan will be spread for some months. On average, the loan term ranges from 12 to 84 months. The repayment term for payday loans is usually 2 to 4 weeks.
The monthly payments are predictable
When you consolidate your debts, the monthly payment is spread over a period. The payments are fixed so you know exactly how much you will be paying at the end of the month.
Personal loan lenders care about your ability to repay the loan
Lenders who offer personal loans check to make sure that you can repay the loan before they grant you the loan. If they realize that you won’t be able to repay the loan, they won’t approve the loan.
You can’t renew the loan
With personal loans, whenever you finish repaying the loan, your account will be closed. If you need a new loan, you will need to apply for it. This is unlike payday loans where you can simply renew your loan.
It is not easy qualifying for a personal loan. It is tougher than getting a payday loan. Consider these things to see if it is right for you to get a personal loan.
Think about the minimum amount
The minimum loan amounts for personal loans vary from one lender to the other, but the average minimum amount is $1500. This is higher than the average amount of people get for payday loans. Ensure that you need as much as the personal loan lender is willing to offer you. If you borrow more than you actually need, you may end up wasting the money.
Check your credit score
Check your credit score to know where you stand. The credit score will help you to identify the right lender for you. It will also help you to know the interest rate you should expect. An unsecured loan may be harder to access if your score is bad. In such cases, you may need to consider getting a secured loan.
Prove that you can pay the loan
Proving that you can pay the loan is very important to personal loan lenders. You need to have an income that can prove that you can repay your debt. If not, you won’t qualify.
Consider the urgency of the cash
Personal loan lenders do you grant loans and quickly as payday loan lenders. Some may be able to grant the loan in 24 to 48 hours. But, if you need the money faster than that, personal loans may not be right for you.
If your struggling with your payday loan debts and you cannot get a personal loan, try these alternatives.
Ask for a payment extension
Some payday lenders can increase your repayment period so that you can repay the loan in installments. This option usually comes with a fee.
Work with a credit counselor
The credit counselor will help you to evaluate your financial situation and help you to improve. Apart from developing a strategy to repay the debt, they will also help you to stay out of debt by helping you with budgeting.
Talk to a legal attorney
Knowing your rights as a borrower can help you to make the best decision on your debts. You may qualify for a free legal aid if you have a low income.
Ensure that consolidating your debts can help you to save money before you opt for it.