Debt consolidation entails taking out one loan to consolidate other loans. This is often obtained to secure a lower fixed interest rate or for the convenience of having only one loan to pay back.(src Wiki definition). Regarding this program and the definition of debt consolidation this is not the case with payday consolidation.
Debt consolidation can simply be a loan to consolidate a number of unsecured loans into another unsecured payday loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by adding collateral, the asset owner agrees to allow the forced sale of the asset to pay back the loan(s) either bank or payday loan(s). The risk to the payday lender is reduced so the interest rate offered is lower with the bank option compared the multiple high interest payday loans.
While the above definition entails a new loan or debt we refer to payday loan consolidation as a hybrid program with benefits similar to a debt management or settlement program. This is not a debt consolidation loan. It is usually viewed as a payday debt resolution program by most consumers that seek payday consolidation.
Payday Loan Consolidation explained
Payday debt consolidation/resolution companies can consolidate the amount of the loans. When the consumer is in danger of bankruptcy, the payday consolidation/resolution company negotiates the loans to a discounted amount. An educated consumer can shop around for payday loan consolidation companies who will pass along some of the savings. Payday consolidation can affect the ability of the consumer to discharge debts in bankruptcy, so the decision to consolidate payday loans must be weighed carefully.
Debt consolidation is often advisable in theory when someone is paying multiple payday loans. payday loans can carry a much larger interest rate than even an unsecured loan from a bank. Consumers with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total amount paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest. With the payday loan consolidation program there is no need for a new loan nor is one granted. Chasing payday loan debt with more debt is never the right way to resolve this issue. Debt consolidation provides the relief. Payday loan debt consolidation can be your solution!
