To meet the requirements for payday loans, many companies require you to earn a minimum $1,000 per month in wages and provide proof of a checking or savings account. In addition, payday loans are only available to those 18 or older.
Payday loans are straightforward, perhaps too easy. A credit check is not required. Give the company your social security number and bank account information and you’ll be approved! It is very rare that a payday loan company rejects an application.
Simply borrow what you need and promise to pay back the money plus additional fees as soon as you receive your next paycheck. Most payday loans demand full payment within 18 days. Some will grant one or possibly two extensions. After that, they will add on late fees.
Video: Payday Loan Scrutinized
People typically apply for payday loans to cover bills in collections. Say you owe $300 on a credit card and can’t pay. You go to the payday loan company to borrow $300 to pay off this bill.
What few people understand is that payday loan companies also slap on the fees. Fine print is something many skip over when they need fast cash. Realistically, payday loans increase your debt.
Most payday loan companies charge you a fee of $10 to $20 for every $100 you borrow. For example, if you borrow $300 and the fee is $20 per $100, you will owe $360 as soon as you receive your paycheck. Average yearly APRs on payday loans are a whopping 300 to 400 percent.
If the due date arrives and you are short on the required cash, many companies will extend the terms, but if you read the fine print, they often double the amount you owe as a penalty after three extensions. Your original $360 loan may soon rise to $720 if you fail to pay on time. With the high APR, this amount skyrockets if your overdue payment extends into a second month.
If a person then takes out a second payday loan with another company to cover other bills, they quickly find themselves swimming in debt with no means to pay off what they owe.
How Debt Consolidation Loans Work
Debt consolidation loans offer much lower interest rates than payday loans. Even with bad credit, it is rare that a debt consolidation interest rate will top 30 percent. You’ll save a bundle on interest alone.
With a debt consolidation loan, you can include all of your unsecured debt, unsecured debt being credit card bills, payday loans, school loans and medical bills. You will borrow this much money and make monthly payments on that amount over a span of years until the debt is paid off.
Let’s say you owe $10,000 in payday loans and other unsecured debt. With an interest rate of 20 percent, you could pay a little more than $265 a month and have all of your that debt paid off in five years.
Make sure you make your debt consolidation loans on time. You can be charged higher interest rates and late fees, depending on your lender’s terms.
Debt Consolidation is the Best Choice
Just by comparing fees, you quickly learn that debt consolidation is the best option. You can stop excessive payday loan fees and interest rates and begin a clear path to getting out of debt.
Top 10 Reasons for Consolidating Payday Loans
APRs of 300 to 400 percent on payday loans should be illegal. Some states are starting to crack down, but other states still allow this deceitful practice to occur.
Payday loans must be paid back typically in 7 to 14 days. Failure to do so quickly doubles the amount you owe.
Medical studies have proven that stress affects your health. Get out from under the stress of ballooning payday loan amounts by paying them off completely.
Payday loan companies can be legitimate, but others are scams. Do you really want an unknown person having your social security number and bank account information?
A delinquent payday loan payment may harm your credit. If you fail to pay on time, the delinquency may be added to your credit report and drag down your rating.
Providing you keep up with your debt consolidation loan payments, your entire debt can be paid off in a few years.
Payday loan companies do grant extensions, but most admit that they double the amount you owe if you have not paid it back within a month’s time. Payday loan companies are not going to forgive you no matter what your excuse.
Debt consolidation loans stop your debt from mounting due to excessive fees and interest. Once you’ve enrolled, your monthly payment will not change.
Video: Federal Reserve Cuts Key Interest Rate
Interest rates have dropped significantly. Lock-in a low rate now with a debt consolidation loan.
Paying off your debt with a consolidation loan puts an end to harassing collection calls.