The Role of Short-Term Lending in Debt Consolidation


Debt consolidation is a handy financial tool that allows consumers to roll one or more loans into a single lending product. This allows the process of paying such obligations to be made simpler as there is only one bill instead of however many were generated monthly by the several loans which were rolled into one. It can sometimes reduce the amount of interest being paid by going with the lowest-interest financier, as well. This option for dealing with a chaotic pile of bills every month is being taken up by more and more consumers all the time.

Debt consolidation is usually thought of as a necessarily large-sized affair, taking thousands or even tens of thousands of dollars in debt and rolling it over into one loan. There are smaller debts, however, that sometimes may be consolidated into a small loan, such as a payday loan or a car title loan, and doing so can eliminate some of the hassles presented by attending to several small debts every month. It may also provide the motivation to pay off these debts more quickly, thus reducing interest payments even more.

The way these small debts can mushroom into much bigger problems than one may have initially suspected is a good lesson in why debt consolidation is becoming more and more popular. A small payment on a retail revolving account, if it isn't paid in time, can quickly become inflated with late fees. Lenders assess penalties and other ways in which these sort of lenders make a lot of money off of someone simply making a payment a day or two late or missing the payment altogether because the amount being financed is so small that it is easily overlooked.

Debt consolidation of these loans using payday loan or auto title loan products may be preferable to letting them slip behind on payments, even if the loan amount is relatively small. With a payday or auto title loan, the amount owed can be paid, on time, thus avoiding any punitive measures imposed by the lender. Of course, since the payday or auto title loan will be operating on a different schedule, it will allow the lender to buy a bit of time before the loan must be paid off. This, oftentimes, is worth the financing charge in and of itself and is a frequent reason consumers choose these short-term lending devices.

The payday or auto title loan must be paid off, of course, but there are built in devices that make it feasible and sensible to pay these debts off quickly. Debt consolidation efforts that actually extend the amount of time it takes to payback the debt rather defeat the point. A payday or auto title loan generally is lent for a fee and accrues interest daily. This means that there is no penalty for paying off the loan sooner than it comes due which, for some consumers, adds an incentive that makes it more tolerable to put off luxuries and indulgences until the debt is settled.

Debt consolidation using a payday or auto title loan will be dependent upon the total amount of debt that's being addressed. Payday and auto title loans are typically limited in the amount that can be financed. In the case of the payday loan, because it is, essentially, a signature type of loan, the amounts are typically small and calculated directly on the basis of the borrower's income. This means these loans are most suitable for paying debts that may go past due on payments and that require a very small infusion of cash to address.

For larger debt consolidation efforts, the auto title loan is generally preferable. These loans are calculated based on the resale value of the car presented as collateral. The amount able to be lent will be dependent upon this figure, state laws and the income of the borrower. These financial devices can provide much larger amounts of cash than can standard payday loans, however, and may, therefore, be more useful when one is attempting to use a lending product to reduce the amount of monthly payments with which they're saddled. Either option can drastically reduce the complexity of one's monthly bills, however.

Debt consolidation, whether it's being done to reduce the number of bills one must pay every month or to lower the amount of interest one has to pay off, makes good sense. With credit becoming harder than ever to obtain, short-term lending devices such as payday loans and auto title loans are one of the most convenient and widely-available financial products for addressing these needs. These loans are widely available online, making them even easier to get, though a vehicle will have to be presented for inspection if one is taking an auto title loan.