10 things you need to know before consolidating a payday loan

1. Quick Access

We all know how annoying and unbearable debts can be. You realize that it’s hard to repay all the debts that you have. One type of debt is payday loans. You are expected to repay a payday loan when your next paycheck comes your way. It’s a short-term loan which requires you to pay the whole lump of cash all at once. Reason for taking up such a loan could range from being broke in the middle of the month before the next payday or due to an unexpected financial emergency. While loans could be life savers up to a certain extent, it could ruin your life too.

2. Payday cycle

Take help of a debt consolidation plan

Take help of a debt consolidation plan

So you may be wondering, how one actually gets into a big debt crisis, so big that it would need payday loan consolidation. For instance, you may take up a small payday loan, hoping that you will be able to repay it immediately once you get your next paycheck. Suddenly, an emergency hit. Perhaps you also need to pay your kids’ school fees, or have a medical bill which your insurance does not cover. So you take up another payday loan. Both loans are expected to be paid back when you get your next paycheck.

However, you realize that you cannot afford to repay both. Thus, you roll over the loans. Rolling over typically gives you a little more time to repay with paycheck you get the following month. However, there is a catch. The interest rate for the rollover amount will increase and so will the fees you have to pay.

Subsequently, your debt increases. You are stuck with the lender and having to repay large sums of money. Due to the roll over, you can’t keep up with the loan payment. The increasing amount of debt is about to stifle you.

Lenders love this situation. You need to get out of this situation with the help of a debt consolidation plan. Hence, you should consolidate payday loans and use that to your advantage.

3.  Outline your financial goals

To get out of the debt, you first have to know your financial goals. You have to plan where you want to be, where you are currently and how you want to get to your target. You should sit down and analyze your financial situation carefully.You to look at all your income sources, then compare them to what owe your lenders. Doing this math will help you establish your financial status.

4. Consolidation



Having established your financial situation, it’s time to start thinking about the solutions. Typically, you want to get out of debt as soon as possible. Payday loan consolidation is one of the best ways to get out of recurring debts and increasing interest rates. However, it is important to be specific about what you actually want. There are 3 main types of debt consolidation companies.

1. Debt consolidation companies: they give you a loan to pay up all your debts and then you repay them slowly.

2. Debt management: these act as third parties who try to re-negotiate the interest rates that you are paying for your current debt.

3. Debt settlement: they are also third parties, but they negotiate to lower the principal balance of your debt.

This means that you have to be very precise with the type of plan you want.

 5. Research

Having decided the type of consolidation plan you want to embark on, you need to look at specific consolidation companies. It is always advisable to allow yourself as many options as possible. You could decide to pay them a visit and try to get all the details on the type of consolidation plans they offer. By giving yourself enough options, you have flexibility.

6. Review

countercheck the credibility of the company

counter check the credibility of the company

You mostly want to rely on the companies that care nonprofits. You have to look at what actually fits your current financial situation and can help you out of the payday loan debt trap. Nonprofits are the most suitable companies, mostly because they are not after making money from borrowers.

Whatever awesome adverts you may have seen, remember that what you see may not be what you get. Thus, it is always important to countercheck with financial authorities to confirm the credibility of the company you are interested to work with.

7. Interest rates

The annual percentage rate of the payday loans is about 300%. This means that the interest rates are quite high. While deciding on consolidating your payday loans, you have to look at the interest rates of every consolidation company. See if it fits your financial goals. The lower the rate, the better. Go through all the options you have until you find the best one.

8. Fees

lower the fees, more advantageous it is for you

lower the fees, more advantageous it is for you

It is important to look at the fees that come together with the consolidation loan you choose. You could be talking about fees that are incredibly high, so you need to look for the lowest fees among your choices. The purpose of the consolidation loan is to let you improve your financial situation while you pay off your consolidation loan. Thus the lower the fees, the more advantageous it is for you.

9. Terms and conditions

A consolidation loan definitely comes with a contract. Signing it will let you be bound by whatever terms which are stipulated in the contract. The terms include things like the time of repayment, the interest rates, and the penalties if you don’t pay up. You have to look for terms that are as flexible as possible. Also, you have to negotiate for breathing space, for if you leave the whole responsibility to the lender, he may decide to suffocate you as you try to look for a way out of the debt situation. This could leave you in worse situations that you were initially.

10. Doing the math

The most important thing is simple to keep up with the numbers. For a good loan solution, you have to weigh the possibilities and make a sound financial decision. It’s all about knowing your numbers and taking them into consideration before making any Payday Loan debt consolidation decision.

Payday loans vs installment loans

A loan refers to money borrowed by a debtor from a creditor that is to be paid back at an agreed time at an agreed interest rate. There are different types of loans for the borrower to choose from depending on which type suits his financial circumstances best. These loans include car loans, payday loans, personal loans and consolidated loans. Most of these loans are considered installment loans since the borrower pays the lender back in scheduled monthly payments. Borrowers should understand the differences between payday loans and installment loans to know what loan works best to their advantage.

Payday loans

 short-term unsecured loan

short-term unsecured loan

A payday installment loan is also referred to as a payday advance. It refers to a short-term unsecured loan that is given to a borrower where he is expected to make payments on his next payday. Payday loans are usually associated with high interest rates as compensation for creditors who face dangers of the borrower defaulting repayments.

The creditor cannot perform collection activities if the borrower does not make payment as payday loans are of an unsecured nature. Hence, they do not require you to put up property as collateral.

Payday loans have a simple but expensive application procedure which. It involves you writing a personal check for the amount of money you want to borrow. You are also expected to pay a certain amount of money for borrowing as application fee. Payday loans take a very short time to be processed. Borrowers receive their funds in their checking account electronically, fast enough to meet their immediate financial needs. Lenders of payday loans ask for little verification which make qualifying for payday loans quite easy.

Payday loan lenders require verification of employment or income which is determined through recent pay stubs and bank statements. This financial information acts as a guarantee that the borrower is in a position to make repayments.

Online payday loans offer consumers fast application and upon approval the funds are deposited directly into the borrower’s checking account. The repayment procedure involves financial charges being withdrawn electronically on the borrower’s next payday. Payday loans come with certain advantages that appeal to many borrowers.

Advantages of payday loans

Payday loans are easy to get

Payday loans are easy to get

1.Easy to get: Payday loans do not involve tiresome procedures and complicated requirements. This makes it easy for borrowers to get a loan. The basic requirements are quite simple and the lender only requires you to have a stable job and a recurring income to qualify.

2. Fast to get: Most payday loans are transferred electronically into the borrower’s checking account. Upon filling out an application form and having your loan approved, you will have the cash you need really fast.

3. Convenience: Payday loans are convenient as they are readily available. Payday loan companies are located throughout most cities. Availability of online payday loans has made it easier for all borrowers to access this loan online.

Disadvantages of payday loans

Payday loans can harm your credit score

Payday loans can harm your credit score

1. They are expensive: This is a major reason why most people shy away from payday loans. Interest rates of a payday loan are extremely high which is linked to the risk faced by the creditors if the borrower defaults payment. Application fees are also charged to borrowers which makes borrowing a payday loan expensive.

2. Payday loans can harm your credit score: As payday loans are expensive, borrowers are often burdened by this high cost. So they may delay in making payments which would adversely harm their credit score.

Installment loans

Installment loans considered to be less risky

Installment loans considered to be less risky

An installment loan is a type of loan where the principal amount and interest are repaid back in scheduled payments known as installments. Compared to payday loans, installment loans are considered to be cheaper and less risky.

Installment loans are either secured or unsecured, depending on the type of installment loan. Mortgages and car loans are secured where the borrower is expected to put up his house or vehicle as collateral to get the loan. Personal installment loans, on the other hand, are unsecured and their borrowing is based more on the borrower’s creditworthiness and proof of income.

Advantages of Installment loans

do not have credit checks

do not have credit checks

1. Fixed interest rates: It is quite distressing when you wake up to hiked interest rates. Some traditional forms of borrowing have varying interest rates which would in the long run, thereby increasing the borrower’s sum of repayment.

With fixed interest installment loans, your payments remain the same since its interest rates are fixed right from the beginning. You know exactly how much to pay every month. With this knowledge, you can budget your finances carefully so that you can make repayments promptly every month.

2. Longer terms: Long term installment loans can be as long as 30 years. During this period, the borrower can spread out their repayments over the loan term at his or her convenience. This makes installment loans more flexible than other short-term loans.

3. Easy and fast to acquire: Once you have applied for an installment loan and it is approved, you can get the money when the lender deposits the funds directly into your checking or saving account. Qualifying for an installment loan is very simple.

The borrower has to meet the minimal age requirements of 18 years and older. You should also have a recurring income source. You must also provide a valid checking or savings account where you can receive your funds.

4. No credit checks: Some installment loans do not check the borrower’s credit score. Borrowers with bad credit or no credit can borrow payday installment loans.

Installment loans disadvantages

Risk of losing property

Risk of losing property

1. High Interest rates: Due to the fact that interest rates for installment loans are fixed, some lending companies may take that opportunity to charge outrageous rates. This would adversely increase your loan repayment amount.

With the help of an installment loan calculator, you may avoid this pitfall. The installment loan calculator estimates for you the monthly payments and interest rates you are required to pay for the type of loan you choose.

2. Risk of losing property: There are installment loans that require borrowers to put up a collateral in order to secure a loan. In the event that he delays repayment, the creditor has the legal right to call for collection activities. In the long run, the borrower could lose his collateral.

Differences between payday loans and installment loans

Difference B/w payday & installment loans

Difference B/w payday & installment loans

Both payday and installment loans are associated with high interests and they can be easily available without subjecting the borrower to any credit checks. Despite their similarities, they also have their differences.

1. Payday loans are unsecured while installment loans can be both secured and unsecured depending on the loan type.

2. Payday loans are short-term loans that should be repaid on the borrower’s next payday. Installment loans provide longer term borrowing of up to 30 years.

3. Payday loans are paid using a post-dated check. For installment loans, lending companies electronically withdrawn or the borrower pay using a check every month.

4.  Payday loans have extremely hefty interest rates that may be as much as 390% whereas an Installment loan can only go up to about 90%.

How to choose the best loan for yourself

There are certain things you should consider before deciding on the type of loan to use. These include:

Interest rates


choose loan with lower interest rate

choose loan with lower interest rate

It is imperative that you choose the type of loan with a lower interest rate. This is because with a higher interest rate, you may end up paying much more in the long run which may force you to take out another loan to repay the former one. Installment loans have considerably lower interest rates compared to payday loans.

Effect on your credit score

Both types of loans may have a negative effect on your credit score if you delay in making payments or in the event that you default. However, making your installments on time every month can help repair your bad credit score. Payday loans, on the other hand, do not improve your credit score.

Repayment preferences

Payday loans are short-term loans. This means they have faster maturity dates and you are expected to repay the loan within a short time, usually by your next payday. Long-term installment loans can take up to 15 years, hence allowing you to plan manageable repayment schedules. This makes installment loans more flexible compared to any other forms of short- term loans. Get an installment loans calculator and see what you are missing on!

Benefits of debt consolidation

Debts have heavy burdens for a lot of people in the recent years. Debts can range from payday loans, credit card loans, bad credit loans, student loans, and cash advance loans, among others.

All of them have one thing in common – stressing you out financially and emotionally. It’s never easy to get out of debt, more so if you are juggling repayment of two or three debts. The situation is worsened by rollovers where the outstanding amount is rolled over to the following month and interest rates increase as a result.

Most people decide to look for ways out before they are crippled by their financial woes. One alternative is consolidating your payday loans. This plan involves getting a loan that covers all your debts and their interests, then repaying it back slowly.
Direct loan consolidation comes with a lot of benefits as it is a lifeline for your financial difficulties.

  1. Single payments

Single payments

Single payments

Here we are talking about the borrower getting the ability to move from numerous debt consolidation to just one. As it is the arrangement of debt consolidation, the borrower gets a loan that covers all the debts that he may have.

He repays all of them and is now left with just one single payment to take care of. The borrower now just needs to service one loan monthly, as opposed to having juggle several loans..

  1. Less stress

Debts are stressful. Debt consolidation loan helps relieve the financial stress you are having. The fact that you now only have one loan to service may relieve some of your pressure. It gives you some breathing space to get your financial situation in shape.

It lets you focus your energy on other meaningful aspects of life and not just worrying about drowning in debt.

  1. Lower interest rates

Lower interest rates

Lower interest rates

Loans like payday loans, cash advances, credit cards loans all have very high interest rates. Imagine the terrible financial situation if you have more than one loan to repay. In the instance of a payday loan, it usually has an annual percentage rate of about 300-350%.

This translates to about a very high 25% interest rate monthly. The stress would be unimaginable should you have to repay 2 or 3 of such loans.

Now if you have a consolidation plan for the loans, you have a huge burden taken off your shoulders. You can move from paying large sums of money monthly in interest to just one monthly payment with a lower and standardized interest rate. Repaying your debts becomes easier.  

  1. Stop collection calls

Stop collection calls

Stop collection calls

One of the worst things that could happen should you have debts is the debt collection calls from collection companies. You have debtors breathing down your neck all the time.Imagine the pressure you would be facing every time the phone rings.

Living with such anxiety is unbearable. Your best option is to get out of these debts as fast as possible.

Debt consolidation can help you eliminate the number of debtors coming after you. Debt consolidation allows you to negotiate your stand and try to match it with the current financial situation that you may be in. Debt consolidation loans help you get out of debt so that you could be leading a normal, debt-free life again.

  1. Credit score

Loan consolidation can improve financial situation

Loan consolidation can improve financial situation

Many people have bad credit scores. Credit scores are badly affected by making late payments all the time. It could worsen to a point that you cannot apply for a traditional loan and get a good interest rate anymore.

With nowhere to get a loan, a bad credit score may push you into getting loans that are riskier than the traditional bank loan, which is akin to jumping from the frying pan into the fire. You may just plunge into a worse financial situation.

Loan consolidation is a solution that could improve your dire financial situation. You get a loan that repays all the debts you had in the past. Before taking up a consolidation loan, you had so many loans to service that could lead to late repayments.

With a consolidation loan, you just have one repayment to make every month. Now, if you keep up with that one repayment every time, your credit score actually improves. This could mean you could qualify for a traditional bank loan with good interest rates in the future.

Debt consolidation puts your finances in order and it makes quite a good long-term financial plan.