4 tips for paying off your payday loans with bad credit
If you’re like the two million Canadians who live paycheck to paycheck, you probably have an intimate knowledge of payday loans and how they work. In many ways, taking out payday loans seems like the best option if you are short on cash or if an unforeseen expense arises and you have nothing set aside to cover it. While these may appear to offer some type of respite, you may find yourself in a worse financial situation than before.
It’s easy to fall into the rabbit hole that is a payday loan. Many lenders make the process hassle free. With traditional bank loans, you must have a good credit rating to get approved. Payday loans don’t need it. All you need is to provide information, fill out a form, and have cash instantly. You can also renew the loan even before it expires, or opt for top-ups. Either way, you are preparing yourself for an endless cycle of debt.
What is a payday loan
Payday loans are short term loans of up to $ 1,500 with high interest rates and fees. They are also called cash advance loans because you have to pay them back when you get your next paycheck. If you are unable to pay them on time, these interest charges will continue to accrue. Most private lenders offer payday loans in stores or online. All you need to do is provide proof of regular income, a permanent address and a bank account.
Once approved, your chosen lender will ask you to sign an agreement detailing the cost of your loan, including interest and fees. Your payment due date will also be indicated. The money will be deposited directly into your bank account. There are also cases where you will receive money or a check. Online payday loans may seem more convenient, but you have to be very careful with them. Always check whether your online lender is licensed or not.
How to pay off payday loans with bad credit
If you find yourself trapped in a series of escalating payments with payday loans, there are ways to pay them off for good and as quickly as possible.
1. Debt Consolidation Loans
The most ideal option is to apply for a debt consolidation loan. This type of loan allows you to consolidate several different debts into one. You will have a monthly payment according to a predetermined schedule of your choice. The best part is that debt consolidation loans often have lower interest rates. It also allows you to extend what you owe in payments over a year or so, making your budget easier.
The downside to most debt consolidation loans, however, is that you need to have a good credit rating and a good credit rating to qualify, which most payday loan borrowers often don’t have. . If you have bad credit but still want to apply for a debt consolidation loan, you can do so through home equity loans. Credit institutions like Alpine Credits offer this service. As long as there is equity in your home, you qualify. Click on here for more information on obtaining this type of loan in London, Ontario.
2. Extended payment plan
You can also go directly to the source to settle your loan. Some lenders offer an Extended Payment Plan (EPP). This option is usually available after a borrower takes out three payday loans within 63 days. A PEP allows you to pay your contributions over a longer period, about four additional pay periods, to settle the loan without adding more interest or fees. As long as you make payments each pay period, you will not be returned to collections.
3. Alternative loans
Another way to pay off your payday loan is to use other sources of money. Compared to a personal loan, any other loan will be more affordable. Look for alternative lenders like small community banks and credit unions. They often cater to borrowers with bad credit. Just be careful while researching as you might run the risk of encountering predatory lenders. You can find trustworthy ones on peer-to-peer lending platforms.
Peer-to-peer loans are easy to process. You can still qualify, even with bad credit. Although they require proof of income and other assets, these types of loans do not always verify credit scores.
You can also have the loan amount transferred to your bank account within days. Credit cards can also be considered as an alternative. Compared to payday loans, they have lower interest rates, so it will be easier for you to pay them back.
If you’re having trouble getting your loan applications approved, you can always ask someone with good credit to co-sign with you. It is a huge responsibility for the person because their credit will be damaged if they default on payment. They will also be 100% responsible for repayment of the loan. Lenders have the right to take legal action against your co-signer, so make sure they understand the risks involved.
4. Debt management plans
If all other options fail, it may be wise to consider a debt management plan (DMP). In this strategy, you will be working with a certified credit counselor who will negotiate on your behalf with payday lenders. You will pay less than the originally agreed amount, but your credit score will suffer. Participation in a DMP will also be included in your credit reports. In the future, lenders may consider you to be high risk.
Other Ways to Settle Payday Loans
Sometimes getting more cash to increase your budget is the only option to pay off your loans. Finding additional work, at least in the short term, will allow you to raise funds quickly and gradually get back on your feet. It can be difficult, especially if you are already thin, but your efforts will go a long way. Keep rushing for that extra income until you’ve finally paid off your payday loan.
Reducing your expenses also helps. There are many ways to do this. One is to make a budget set your limits and stick to them. Another sure-fire way to spend less is to switch to a cash-only system. Automate your payments to savings and expenses so you won’t be tempted to splurge on non-essential items. Plus, cut unnecessary costs like cable and other subscriptions.