Everything You Need to Know about Private Student Loan Consolidation
Private student loan consolidation refers to the process of taking out a new loan, so you can use it to pay off other existing loans. If you are able to get a new loan, then you are responsible for repaying a much larger debt. While you may be able to consolidate private student loans, you need to consider the benefits and drawbacks that you can expect from it.
Overview on Student Loan Consolidation
There are certain requirements that you need to meet, so you may be eligible to consolidate student loans. For instance, you should be enrolled as a full-time student, or make loan payments promptly. Furthermore, you must carry about $5,000 to $7,500 in your student loans, and you should keep in mind that you could only consolidate loans that you hold in your name. Lastly, each lending company comes with a minimum balance required for loan consolidation.
Benefits of Consolidating Loans
Most students consider consolidating their loans because of the following benefits:
1. Streamline the process of paying your bills.
If you currently have several student loans, you may need to remember numerous due dates for monthly bill repayments. With a single loan, there is greater convenience when it comes to writing off a check or remembering the repayment due date.
2. Extend your bill repayment term.
When you have problems with repaying your debts or you are anticipating a change in your expenses and income, you should consider consolidating loans and lengthening the period of time for repaying all of these. The only drawback, though, is you will have to pay a higher interest on your new loan for a longer period.
3. Reduce your loan interest rates.
Individuals who have more than one private student loan may qualify for low interest rates. However, this only applies to those who have a good credit score, so you should analyze your current credit rating before deciding to consolidate loans.
4. Get an alternative repayment plan.
You may have experienced recent changes in your income or expenses since you first received your student loan. Moreover, the existing repayment plan may no longer match your present financial situation. With private student loan consolidation, you can choose from several repayment options depending on your balance, income, and other aspects.
While consolidating loans may come with several benefits, you may have to consider some potential drawbacks such as the possibility of paying more when it comes to interest rates, having a larger loan repayment amount, extending the loan for a longer period, paying prepayment penalties and borrower benefits.
In addition, you should be wary in choosing a lending company, since there are fraudulent lenders that may offer private student loan consolidation. For instance, you should be cautious if a lender tells you that your interest rate will reduce dramatically by consolidating your loan. While your new loan may be lower than the average, you will end up paying a higher fee because of the total interest rates for all your loans. With this in mind, you may have to pay a similar fee or slightly more for your consolidated loan.
Weigh Your Options
Before you decide to apply for student loan consolidation, make sure you consider several factors. You should analyze the current interest rate you are paying on loans, and evaluate how this amount would compare to the fees included in a consolidated loan. Furthermore, you have to determine your financial ability to settle your new monthly bill repayment. Take into consideration your income and expenses, and make sure you have the means to pay your monthly fees promptly. After you have analyzed these factors, find out the entire duration of your new loan and the total interest you have to pay.
There are several issues and factors to consider when deciding whether you should consolidate your loans. Although there are numerous benefits in loan consolidation, you need to keep in mind the potential concerns and problems that you may encounter. For instance, you may be charged with higher interest rates, and you will have to pay off your loans for an extended period. Make sure you investigate all issues in consolidating debts, and analyze what you are getting into prior making a decision.