Payday loan consolidation refers to the process of combining several smaller loan amounts into one larger, multiple loan amount. Consolidation loans are available from several different sources and are sometimes used as a way to pay off existing loans.
How does a payday loan consolidation work?
A borrower offers his or her personal and household income information to a lender for a loan of a predetermined amount. The borrower then goes about using the loan to meet a short-term or emergency budget.
This is called a “payment term.” Once the “payment term” is over, the loan is discharged and the payment is returned to the borrower. Alternatively, if the borrower has used all the funds in the loan, he or she can elect to have the entire loan paid in full.
After the “payment term” is over, the loan balance usually ends up on the borrower’s monthly credit card statement. So, how do borrowers who don’t plan to pay off their loans early achieve their goal of paying off their debts?
Payday loan consolidation, often done through an online lender, works in a very similar fashion to other forms of debt consolidation. Borrowers must think about what they will do with their debt when it’s paid off.
Some people may be able to clear out their accounts and clear out the outstanding balance by having their lenders take the entirety of the loan amount. Others might need to think twice about this course of action. It could require more upfront money to pay the lender.
Borrowers should decide what their best option is going to be when trying to repay their debt. This will include an evaluation of what they can realistically afford to pay back on a monthly basis.
Debt Management Considerations
One of the main debt management considerations is whether or not the borrower has a car payment that is high enough to pay off the entire loan on its own. If not, then some form of payday loan consolidation may be necessary.
Another consideration is the potential of the borrower having extra cash coming in while paying the loan off. A client with a fast pace lifestyle will need a fast repayment cycle as a result of paying off the loan in full.
Since the loan is a larger sum of money than the monthly payments required to pay off a credit card or other debt, the borrower can use the lump sum to pay other bills or even borrow against it. Some pay their credit cards on a regular basis and are aware that they can always pay them off at any time.
Some payday loan consolidation can be done online. However, borrowers should be aware that getting help from an online lender does not mean that they will automatically qualify for a loan.
Finding a program with a reputable company and getting an appointment to make an appointment will allow the borrower to apply for debt consolidation online. This ensures that the borrower will be qualified for a loan, regardless of the availability of funds for their loan.