With numerous fees and interest rates, many payday loan borrowers wind up owing more than they took out. The solution to this dilemma is to get more than one loan and then deal with the creditors.
After consolidating payday loan debt, lenders ask borrowers to give up their credit cards, autos, and even their home. No, this is not a joke. In order to be approved for another payday loan, borrowers must give up all their credit cards.
It is not uncommon for lenders to add other fees and late fees in addition to the payday loan fees. Once all these fees and interests are calculated, lenders make upwards of fifteen percent profits on these loans.
In addition to surrendering their credit cards, payday loan borrowers often must give up cars and homes in order to be approved for another loan. However, one should also be aware that if a borrower has to give up their car or home, these assets will not be tax deductible.
Some states have enacted laws that forbid the lender from charging a late fee for a payday loan borrower who is also carrying a second loan. Not only does this protect the borrower from such an interest penalty, it also protects the creditor. Often, the debtor is allowed to keep the home or car while receiving assistance to pay off the original loan.
The federal government also regulates consolidation programs and states state laws that restrict the circumstances under which a creditor can charge a borrower for services offered. Therefore, it is not unusual for a lender to ask for collateral as part of the consolidation process. Borrowers can generally refuse to place collateral in order to qualify for another loan.
Many times, borrowers choose to take out additional loans in order to cover the cost of consolidating their previous loans. If a borrower opts to continue with two loans, then it is important that he or she pays off the first loan as soon as possible. Lenders know that if borrowers continue to use their loans, they will rack up interest and late fees.
In most cases, borrowers will need to make payments on the second loan in order to obtain the primary loan. Some lenders will require that borrowers agree to return the secondary loan before they can receive the primary loan. This could pose a problem for those who are not able to pay off the secondary loan in full.
Another option to consolidate payday loans is to make payment arrangements in advance of making the primary loan. Sometimes, borrowers arrange to pay off the secondary loan early, while others prefer to do so when the borrower can afford to make the payment in full. Either way, paying the secondary loan in full is important in order to avoid interest penalties.
Depending on the type of payday loan being consolidated, borrowers may also be asked to sign a promissory note or agreement to pay the lender for their troubles. These notes are meant to protect the lender in case the borrower fails to pay the borrowed funds.
A note is commonly used with secured loans such as mortgages and home equity loans. When it comes to unsecured loans, however, borrowers typically sign a promissory note with any payday loan company. Even so, it is important to remember that lenders usually seek collection agencies to collect funds if a borrower defaults on a loan.
Signing a note is a minor inconvenience. It means that the borrower is committed to the company and to paying the debts of the original payday loan. In most cases, the consumer is still responsible for paying the accrued interest and fees on the secondary loan, but the lender is not legally obligated to help recover delinquent funds.