What Is A Payday Loan?
A payday loan is a short-term loan in a small amount that normally carries a high interest rate. The loan typically needs to be repaid from your next salary or wage check. If you fail to make payment, you are given the option to extend the loan for another 30 days or longer.
This extension results in additional fees and interest. This in turn can result in a debt trap where you keep extending the loan and are barely able to repay the interest and fees never mind the principle debt amount (the amount that you originally borrowed).
If you find yourself in a payday loan trap, you may want to consider loan consolidation to repay the loan/s in full and in one go.
What Is Payday Loan Consolidation?
Loan consolidation is the process of taking out another loan, usually a personal loan, in the same amount as multiple other loans or debt. This allows you to pay the debt off in one go and then you have only one loan with one interest rate and fees to repay every month.
Does payday loan consolidation work and how can you benefit from it?
Personal loans are also short-term loans but have a repayment period of between 6 months and 2 years. You therefore have a longer period to repay your debt. Personal loans also notoriously have high interest rates but not as high as payday loans. This means that you are paying less for the loan that you would if you continue to extend payday loans.
So does payday loan consolidation work?
For most people, this a good option to repay a payday loan quickly and conveniently if they are stuck in a debt trap. However, in order for the process to be of the greatest benefit, it is recommended to only take out a personal loan for consolidation purposes in the amount that you need and no more.