First of all, the difference is in the fees. Payday loan is the most expensive form of borrowing money. High interest rates, around loan fees, as well as penalty interest make repayment of payday loans not a pleasure. The problem increases even more when we have trouble regulating them.
The worst possible solution is to take more loans to try to patch your household budget. As a result, it is very easy to fall into the credit loop, which will only worsen our situation.
How does this apply to installment loans?
First of all, their interest rate and costs are much lower than for payday loans. The sad truth is, however, that banks are happy to provide them, tempting customers with attractive terms. A financial product that seems so innocent easily leads to a debt loop.
Regardless of whether you have installment loans or borrowings, you must remember one thing – the easier it is to get them, the more dangerous they are. What it comes from? At some point, we stop counting how many we have and we are not worried about the worse month, because we can take a payday loan, which we will use to pay off other debts.
In this way, instead of sitting down with a calculator and counting how much money we need for our debts every month, we fall into a dangerous debt spiral.
Watch out for the consumer lifestyle
What promotes taking more loans and payday loans? Consumer lifestyle. Everything is so cheap and so easily accessible. And what do we do when there is no money in the wallet? We are getting into debt. I have 30 or 60 days to pay back payday pay. And how much I earn and how much I have to pay back, nobody counts. When do we wake up from a loan dream? When we get letters from creditors and in the worst case when our debt is in a state of immediate repayment.
Most often it is only at this point that we ask ourselves how it happened, and then there is not much time for the reactions.
Banks and financial institutions – not so scary
What are we afraid of the most when there are problems with paying off debts? Conversations. One of the simplest things we can do to get out of the debt loop is the hardest.
And yet both banks and financial institutions are also people and it is worth starting a conversation with them. It should be remembered, however, that the sooner we dare to contact institutions to which we owe money, the better because we have a better chance of a favorable solution. Instantaneous payday loans or loans that are already at the debt collection or notice stage do not create a comfortable situation for negotiations. The first question you hear is: “And where were you two or three months ago?”
In part, this is a valid statement to which we usually have no answer. In this situation, every conversation with the creditor is more difficult because we have no way of proposing our own repayment solutions, because in the eyes of a financial institution or bank, we are a frivolous customer who contacts only when he has a knife in his throat. Conditions protecting us from additional costs related to the debt collection process will certainly be much worse than if we had contacted immediately.
So what gives immediate contact with the lender?
First of all, it builds trust between the lender and the borrower. Both sides see that they are taking seriously. Both loan companies and banks, at this stage, are willing to negotiate repayment terms or stop charging default interest.Nowadays, when so many people avoid paying their financial obligations, those who contact to agree on new repayment terms are treated with due respect.
We can often meet with understanding from financial institutions and conclude new, much more favorable settlements.
Consolidation loan – its pros and cons
Is a consolidation loan always a good option? Unfortunately not. First of all, only a narrow group of banks offers the possibility to consolidate payday loans. And since it is a niche product, it may turn out that the conditions offered and the interest rate will be worse than what we have so far. Another problem is getting such a loan.
Of course, stable employment for many years will help, but the truth is that banks are reluctant to look at clients who have a lot of debt. Repayment of one consolidation loan instead of several loan installments has one more negative effect.
In fact, it extends the time in which we pay money. This negatively affects us. When we repay several small loans, much faster comes when one of them is settled in full.
It improves our psychological comfort, giving us the feeling that we can handle this difficult situation, because we have already repaid something. It also encourages you to save and save money on other arrears.
Calling the financial institution later with the information that we want to settle the entire debt, we can apply for the redemption of part of the interest or penalty fees.