Nonprofit Payday Loan Consolidation | CitrusNorth
A nonprofit payday consolidation loan may be an option if you find yourself in the payday loan debt trap. Payday consolidation loans can help you avoid falling into the payday loan debt trap.
Here are some things you need to know about the consolidation of payday loans
An estimated 12 million Americans get payday loans each year. Payday loans are among the most expensive ways of borrowing money. Payday loans can have an annual percentage rate (APR) exceeding 300%. This is far higher than the average credit card APR, which is around 16%.
Payday loan borrowers can end up in an endless cycle of debt. They either extend their original loan to cover additional payments or take out another loan to pay off the loan.
What is Payday Loan Consolidation?
While payday loans might seem like a quick fix for financial problems, they can quickly lead to financial ruin.
Consolidating payday loans is one way to reduce the debt from payday loans. Consolidating your payday loan debts with a consolidation loan will allow you to consolidate high-interest loans into one low-interest loan.
A typical payday loan should be paid off in a matter of weeks. However, many borrowers find it difficult to pay off the entire amount within that time. Payday loans are typically extended and renewed, so they take longer to pay off than the usual weeks.
Let’s suppose you get a $300 loan from a payday lender for two weeks. The lender charges you $50 in finance fees. The APR of the loan is equivalent to 434% if it is paid off in two weeks. The lender can extend the due date if you are unable to pay the debt in two weeks.
However, a fee will be added. If you have multiple payday loans, this debt cycle could continue. The average payday borrower will take out ten loans, leading to a lot of interest and fees.
Consolidating your payday loan debt allows you to end the debt cycle. It also allows you to repay your debt in fixed monthly installments over a more extended period.
What is Payday loan consolidation?
The best thing about payday loan consolidating is that you can save money by switching several high-interest loans to one loan with lower interest rates. This strategy typically involves getting a personal loan from a bank or credit union. A personal loan is generally paid off in one to five years by a lender.
According to the Federal Reserve, the average interest rate on a personal loan from banks was 9.58% as of May 2021. This is a lot lower than the average interest rate for a payday loan.
When borrowers apply to payday lenders, they don’t usually conduct a credit check. Payday loans are popular among people with poor credit scores. They might believe they won’t be able to qualify for a consolidation loan. However, this might not always be true.
Even if you have a low credit score, you may still be eligible for a consolidation loan. However, you may end up paying a higher interest rate than if you had a good score. CitrusNorth can help you find the right debt consolidation loan for you.
An alternative payday loan (PAL), offered by a credit union, is an option for those unable to get a conventional consolidation loan. To consolidate high-interest payday loans and pay them off, you can use a personal loan agreement (PAL) with a maximum APR of 28%. Credit unions usually allow you to repay a PAL in six months.
Payday loan consolidation vs. debt settlement
Consolidating your payday loan debt may be better than either consolidation or bankruptcy settlement. According to the National Federation for Credit Counseling, debt settlement can be riskier than debt consolidation. Due to the high fees that debt settlement companies charge, it can cause significant credit damage.
To negotiate for you, debt settlement companies will negotiate on your behalf. They hope that you will pay less to creditors than you owe. However, there is no guarantee that debt settlement will succeed. This could leave you in a worse financial position than before.
Although debt settlement companies are often called “debt consolidation,” they don’t offer the same services. While debt settlement is a debt reduction, debt consolidation will result in you paying one monthly “consolidated” loan payment until you receive the lower-interest loan.
Can consolidating a payday loan hurt my credit?
A payday consolidation loan, on the other hand, will usually appear on your credit report. It can help or hurt credit, depending on how you handle the consolidation loan.
You can expect a temporary drop in credit score when you first apply for a payday consolidation loan. This is because the lender requests to see your credit score or credit report. It shows up as a ” Hard inquiry” on your credit reports. Because the consolidation loan will lower your average age, it could cause a dip in your credit score.
Your score can improve over time. This can be achieved by making timely payments on the consolidation loan and keeping your balances low in other credit accounts. Also, avoiding unneeded credit applications can help to drive this up. Consolidating will also help you get rid of high-interest payday loans. This can save you money and make debt payments more affordable.
The bottom line
Reaching out to a nonprofit credit counselor is a great way to get help if you feel overwhelmed by payday loan debt. Consultations with nonprofit credit counselors cost nothing.
It’s a good idea before you meet with a credit counselor to review your credit score from CitrusNorth and to report to find out where your credit is at the moment.
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