A personal loan is one of the most popular financing methods out there. A lot of people will turn to a personal loan when things get sticky, financially. But more than just being a convenient way to pay off debt or get out of a tricky situation, a personal loan can actually also be used to consolidate your current debt and even help you get a better deal on your repayment instalments. You can even reduce the amount of interest you pay. Here's what you need to know.
How Much Do you Repay Now?
You may not want to look at just how much you are supposed to repay and how much interest that is, but it's essential to the process. For that, you must review all of your accounts, your credit cards, store cards, loans, etc. Anywhere you owe money is probably charging you interest - some places more than others.
Now, how are you paying these back? Are you trying to pay as much as you can, so that you can get rid of debt faster? Are you only making the minimum payments? How long will you end up repaying? That can severely impact your interest rate.
A Personal Loan Can Help Consolidate Your Debt
If your debt is scattered all over the place in a million different sources, you are probably having a hard time keeping track of everything. It's difficult to remember how much you owe in each place, how much you've repaid, what the interest rate is, when the payments are due, etc. It leads to chaos in the personal finance department. More importantly, you are probably overpaying interest. Personal loans can help with that.
You see, when you consolidate with the help of a personal loan such as a payday loan, you only need to worry about one loan, one payment, and one interest rate. In addition, you can even reduce the amount of debt you owe, and the interest rate applied to the loan. You are essentially taking all that scattered debt and streamlining it.
How Much Will You Pay In Interest?
As for how much you end up paying in interest on a loan, that depends on several things, most importantly, your credit score. The interest rate will not be the same on every loan and from every lender. It varies. However, no matter what the interest rates on your previous loans, when you get a payday loan or a different personal loan to consolidate debt, you should get a loan with a lower interest rate, in order to get a deal and save money.
How Long Are You Going To Pay It Off?
Repayment term is certainly a concern, as that will directly affect the amount you pay in interest. However, it is equally important to look at affordability. If you can't afford the monthly repayment instalments, that will create more trouble. You want to strike a balance between paying the loan off within a decent amount of time that doesn't come with a high interest rate and choosing to make affordable payments that won't create the necessity of taking other loans.
What Kind Of Loan?
As you may know, personal loans exist in numerous varieties - from unsecured loans like payday loans to secured ones such as mortgages and logbook loans. Both options have advantages and disadvantages.
On the one hand, getting an unsecured loan means you don't need to own - or offer - an asset as collateral, and you don't risk losing it in case of non-payment. However, a secured loan offers you more money, precisely because you are putting up collateral. In addition, it enables you to borrow even with a bad credit score. You do, however, risk losing the asset. So, you have to decide whether the risk outweighs the benefits. It's definitely something to take into consideration and you should weigh the pros and cons carefully before making a decision.
All in all, personal loans like payday loans can really help you out by consolidating your debt. That means that not only will it make it easier for you to keep track of your payments and manage your debt, but it can actually reduce the amount of debt you owe and the interest that you will end up paying on it in the long run. Just give this guide a read and see what you can do to cut back on the amount you pay for your loan.