How Payday Loan Consolidation Can Help You
A Bad Debt Consolidation Loan to Improve Affordability
Sep 13, 2009
Payday loan consolidation is one of the most efficient ways to pay-off debt. It is an excellent way for homeowners to improve affordability as the majority of payday loan providers charge customers well in excess of 400% APR per annum.
What is Payday Loan Consolidation?
A bad debt consolidation loan allows the borrower to pay-off existing creditors and make just one payment each month. Putting all high interest borrowing sources under one roof not only removes complications, it reduces the percentage of disposable income that goes directly towards debt repayment.
Why is Payday Loan Consolidation Necessary?
Payday lenders charge customer approximately $25 per month for every $100 borrowed. This means that borrowing just $500 over 30 days will cost as much as $125. Should the borrower be unable to repay the loan on the date it is due, the cost of borrowing will quickly spiral out of control.
Providers argue that this rate reflects the risk they face in terms of the borrower defaulting on the agreement. They also point out that the customers who they lend to are forgotten by the majority of mainstream lenders. A payday lender will offer anyone a loan who has a full-time job.
Whilst these are valid reasons for a high interest rate, critics argue that the rate borders on usury. Financial difficulties will quickly arise for those who have signed-up to several different agreements. The good news is that homeowners with sufficient equity could get a Home Equity Line of Credit (HELOC).
Low Interest Consolidation Loans
Whilst a payday loan will cost the borrower well over 400% APR, HELOC loans are widely available for 9% APR. The main reason for this discrepancy is the provision of collateral; the default rate on HELOC loans is extremely low.
A HELOC loan is a flexible way of borrowing against any available equity. The homeowner is then able to spread the cost of repayment over a period of time that is as long as the primary mortgage. As the name implies, it is a form of revolving credit (like a low interest credit card) as the money can be used at any time.
The flexibility, combined with the favorable rate of interest, means that it is one of the cheapest ways to consolidate debt. It also means that it isn't necessary to keep taking out new loans when family finances become a little tight.
Payday loan consolidation is one of the most affordable ways to pay-off debt. A bad debt consolidation loan will help to reduce the percentage of disposable income that goes towards debt repayments each month. However, it is always important to think carefully before turning unsecured debt (credit cards, Payday loans, medical bills etc) into a source of borrowing that is secured against the family home.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional before proceeding.
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