A Comprehensive insight through Loan Consolidation and Refinancing
Just a few years back, some students were applying for college. Today they have completed their study andhave graduated happily. Apart from the brand new college degree, most graduates depart from campus with a bag full of loans that should be reimbursed. These loans play an integral role in their post graduate budgets. Conversely, this is when the hunt for strategies that would help them to repay their loans begins. Some students opt for loan consolidation. This is a simple trick that supports well organised repayment sessions. When you consolidate loans, you will combine and convert smaller loans into a mega one. Loan consolidation has a huge myriad of pros and cons. During this write up, you will read about loan consolidation and refinancing.
What does Loan Consolidation Mean?
Loan consolidation is a very tricky process. While consolidating loans, the borrower must take a brand new loan out to pay off the smaller ones. Conversely, the borrower doesn’t have the think of many small loans. Instead, they should be concerned only about the mega one they took to repay. According to Michelle Pezzulli, loan consolidation has become famous amongst students with good credit scores. The method helps them to refinance hefty loans in a smooth and composed manner. Generally, the consolidated loan would have a separate interest rate together with different reimbursement conditions. Most students are attracted towards consolidated loans due to its flexible monthly plans and enhanced reimbursement periods.
Think Twice Before You Repay Federal loans through Consolidation
Refinancing student loans through consolidation is quite a long process. The type of loan plays a very important role during the process. According to market leaders, direct plus, federal loans, Perkins loans, Stafford loans and supplemental loans can be consolidated easily. Federal loans can be consolidated with other federal loans without any hassles or tussles. On the other hand, you cannot consolidate federal loans with private loan plans. This can be attributed to the steep gap in interest rates as well as the reimbursement period.
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The interest rate of consolidated loans would be an average of all the federal loans. Luckily, to avoid very high interest rates, the Department of Education has placed an upper threshold of 8.25%. A major advantage in consolidating federal loans is that students are not expected to have a very good credit score. You can apply for the loan without a strong financial background. Additionally, the loans have a fixed interest rate at all times. No matter how bad the market is, borrowers should expect to pay only 8.25% and nothing more.
Can You Consolidate Private Student Loans? Is the process easy and effective?
You can consolidate private student loans too. As mentioned previously, private loans can be merged with other private loans only. However, these loans will comprise of dissimilar rates of interest. Thus, every loan you merge will have an impact on the final rate of interest. When you consolidate student loans with very low interest rates, you can save several tens of thousands of dollars. This will also result in a steep increase in interest rate as the duration ticks by. Refinancing student loans by consolidating private loans is a tricky process. This is because you must pass a credit check and be financially strong. If your credit score is not great, you might end up paying more than the initial unconsolidated figure. Additionally, you should have a co-signer to consolidate private loans. These are stern points that have reduced the likelihood of opting for private loan consolidation.
The Very Many Benefits of Loan Consolidation
Federal loan consolidation is an enticing refinancing plan that has plenty of benefits. Here is a comprehensive insight through these benefits:
- Cheaper Repayments – Consolidation will reduce your monthly repayments. This can be attributed to its long reimbursement plan. As the monthly payments reduce, you will have more money for food, car, rent and utility expenditures. Do you know that you can cut down your balance to 53%? And, the scheme doesn’t have any penalties for extra or early reimbursements.
- Low Interest Rates – Federal refinancing will lock you with low interest rates. Unconsolidated federal loans tend to have variable interest rates that will impose a stern burden on your shoulders. However, consolidated federal loans will have a steady interest rate throughout the entire period. Hence, you can carefully plan your cash inflow and outflow without any hassles or tussles.
- A Personalized Routine – Consolidation will help you to draft a customized payment routine. This is where you can handpick a payment plan that best suits your income and monthly budget. Always remember that there will be a period of financial instability; namely after graduation and before you get a job.
- Making Single Payments – As mentioned previously, loan consolidation will enlighten you with just one payment every month. You should write only one cheque to your lender every month.
- Interesting Benefits – Refinancing through consolidated Federal loans has many interest and deferment benefits. This is because consolidated federal loans are equivalent to another new federal loan. This way, you can keep the forbearance and loan deferment benefits for a longer period.
- A promising Credit Score – Finally, the loans will help your credit score. When you repay student loans properly, your credit score will increase prominently. In a small nutshell, loan consolidation will be your first step towards obtaining a healthy credit score.
Loans that can be consolidated and repaid easily!
On the whole, Stafford loans, Perkins Loans, Federal Grad PLUS Loans, Federal Parent Loans for Undergrad Students, Federal Direct Loans, Federal Insured Student Loans, Federal Supplement Loans for Students, National Direct Student Loans, Health Education Assistance Loan, Loans for Disadvantages Students and Auxiliary Loan to Assist Students can be refinanced through consolidation. These plans follow similar terms and conditions. Hence, consolidation will not impose a massive change in the final rate of interest and reimbursement terms.