Many needs that arise in everyday life lead to a situation where there is a shortage of funds for their implementation, hence the temptation to take out a loan. People who have no creditworthiness in banks give in to the tempting offers of loan companies. And it is short-term loans that are popular payday loans are becoming a source of problems. Any financial commitment, whether a loan or a loan, must be settled within a specified period.
Cash loans are loans with short repayment periods, which is why they generate the biggest problems with timely repayment. Having several installments of classic installment loans can also put a heavy burden on your household budget. As a result, the installments are seriously struggling, it is difficult to find funds for their timely settlement, which is why it is easy to submit proposals for another loan to cover previous liabilities. Is this a beneficial solution? Is it worth paying back one loan to another?
Debt spiral trap
Indebtedness is a significant problem in our country, which, according to the latest statistics developed by specialists from the National Bank of Poland, already affects 40.5% of our country’s population. Only 23% of households can save regularly. We usually reach for payday loans in the pre-Christmas periods and during the holidays, when money is needed suddenly, and non-bank institutions tempt with quick loans via the Internet. Record holders can boast of having over a dozen payday loans. By taking another loan to cover another loan, we are actually increasing the value of the debt. Debt increases, does not disappear.
Loan companies grant loans based on a basic analysis of the client’s financial situation and it often happens that the budget is already tight enough to take another loan, and yet it is granted, usually by another loan company. The need to cover the debt in connection with the previous loan means that not everyone always carefully looks at the terms of the next loan, and these may, unfortunately, be unfavorable.
More and more expensive liabilities are causing a spiral of debt. A debt spiral , also often called a debt loop, is a situation in which the borrower tries to repay the previous debt, incurring another financial liability, generating higher and higher interest, as a result of which he completely loses his ability due to lower income from the sum of monthly liabilities. Due to the threat of such a situation, it is not worth deciding to take another payday loan to cover the previous one, because the deadline for repayment of each of them is short and not in every household budget there will be funds for timely fulfillment of contracts.
Refinancing a loan or installment loan?
There are, however, some situations in which a new commitment can be a significant help in paying off your previous debt and save you from a total debt spiral. There is a tool on the financial services market that is not always worth using. I’m talking about refinancing a loan. Due to new regulations limiting the procedure of rolling out loans, loan companies offer refinancing loans , i.e. transferring the debt to another lender with obtaining new repayment conditions, which, however, involves an additional fee. Refinancing costs are really high. A borrower who has to pay back payday loans to get straight can use a installment loan. In this case, the new financial commitment should be tailored to the financial situation and be the lowest possible budget burden. An installment loan is a form of financial liability with a repayment period of at least several months. Monthly debt repayment will be easier than repayment of several loans in the short term. You just have to remember not to succumb to temptation and take out a new payday loan or additional loan.
A borrower who has several debts in the form of installment loans and the monthly expenses associated with them makes life difficult, he can take advantage of consolidation loans. A consolidation loan allows you to combine two or more previously contracted loans with a simultaneous extension of the repayment period. The new conditions give you the opportunity to get one, in addition a lower installment, but you have to be aware that there is nothing for free and the debt and repayment period will increase. The positive side of this solution is that the monthly debt servicing costs are reduced, which makes it straightforward.
Think before you give in to temptation
There are many solutions that provide specific help for the debtor, so reaching for another loan is a step that should be carefully thought out. Instead of taking another loan, it is often better to try to save or look for a way to earn extra money. Additional work can help you meet your needs and pay off your loans. In a crisis, it is better to lower your standard of living. Ultimately, when deciding on a loan to pay off a previous one, you should carefully examine its terms and calculate your home budget.