Payday lenders prey on bad credit borrowers who are in dire need of cash, trapping them in a cycle of high-interest debt that is difficult to repay.
The vast majority (93%) of borrowers regret taking out their payday loan, according to a new survey by debt hammer. Only 1% of respondents said their financial situation improved after taking out a payday loan, while 84% said they got worse.
Payday loans offer consumers the opportunity to borrow small, short-term cash loans without a credit check. But the typical repayment period is only two weeks, resulting in 4 out of 5 borrowers taking out a new payday loan to pay off their current debt Consumer Financial Protection Agency (CFPB) reported.
It is possible to get out of payday loan debt without extending your loan and charging additional fees. Read on to learn how to break the cycle of borrowing payday loans such as: B. Debt consolidation with a personal loan. You can compare debt consolidation loan rates for free on Credible without hurting your credit score.
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The average cost of a payday loan equates to an annual percentage rate (APR) of almost 400% — in other words, borrowers who continue to roll over their payday loans could end up paying four times the amount they originally borrowed over the course of a year.
Payday lenders might fool you into thinking that extending your loan is the only way to pay off your debt, but that’s not the case. Here are a few alternative ways to break the payday loan cycle:
- Debt Consolidation Loan
- Advanced payment plans
- credit advice
Read more about each amortization schedule in the following sections.
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1. Debt Consolidation Loan
Personal loans are lump sum loans that are commonly used to consolidate higher-interest debt, such as B. Payday loan debt. They come with fixed interest rates and repayment terms, meaning your monthly payments stay the same while you pay down your debt.
These debt consolidation loans are usually unsecured, which means you don’t have to put up any asset as collateral. Because they are unsecured, lenders determine your interest rate and eligibility based on your credit history and debt-to-income ratio.
Qualified borrowers may qualify for a low interest rate personal debt consolidation loan. The rates for personal loans are almost as low as ever, according to the Federal Reserve, average 9.39% in the third quarter of 2021.
Some credit unions also offer Small Payday Alternative Loans (PALs), which allow members to borrow up to $2,000 with an interest rate cap of 28%. These loans can be hard to find, however, as only a small portion of credit unions offer PALs.
You can see if you qualify for a debt consolidation loan on Credible by making a gentle loan request that doesn’t affect your credit score. Use a personal loan calculator to estimate your monthly payments and see if this option can help you get out of payday loan debt.
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An extended payment schedule (EPP) allows payday loan borrowers to pay off their debt over a longer period of time than the typical two-week repayment period. Many states require payday lenders to offer EPPs, so you’ll need to research your state laws to see if you’re eligible.
Some payday lenders may offer EPPs regardless of whether they are required by law to do so. lender of Community Financial Services Association of America (CFSA) are required to offer EPPs to borrowers, but other financial institutions may not offer this option.
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Nonprofit credit counseling agencies offer free or low-cost services to borrowers who are struggling to manage their debt. One of these services involves enrolling payday loan borrowers in a Debt Management Plan (DMP).
As part of a DMP, a loan advisor will help you create a budget and schedule for debt repayments. Loan advisors may be able to help you negotiate with payday lenders to agree a lower interest rate or reduce the loan amount.
For a full list of Certified Nonprofit Loan Advisors, visit Ministry of Justice Website. If you still have questions about payday loan debt relief, learn more about debt consolidation by contacting a knowledgeable loan officer on credible.
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