If you have multiple loans for whatever reason, paying the bills monthly may cause you quite a bit of hassle. A loan consolidation will pay off your existing loans, leaving you with only the single loan payments. Most student loans qualify for loan consolidation.
Another reason many people want loan consolidation, is to lower payments that they are having a hard time meeting. You may be able to extend the term of your loan when you consolidate, which will lower the payments. If you cannot make the payments, this may save you from defaulting on them or getting too far behind, but don’t forget that the longer your loan is extended, the more interest you will end up paying, because of extra time and also because shorter loans usually get lower interest rates.
If, however, you had poor credit at the time you obtained the original loan or loans, and your credit has since improved, you may be able to get a lower interest rate on the loan consolidation, which can result in lower payments for you without even extending the term of the loan. The only catch here is that you may face closing costs or other fees for the loan consolidation. Take these into account to accurately determine if loan consolidation will actually save you money.
Students have the option of consolidating their student loans through federal loan consolidation. If they do this, they will be guaranteed a fixed interest rate that is lower than 8.25%. For more information on student loan consolidation, you may contact the Direct Loan Consolidation Center at 1-800-557-7392.
If you are not a student, you may want to consider loan consolidation with a home equity loan. If you have owned your home for long enough, you may be able to borrow a good deal of money, and this kind of loan consolidation generally offers very low interest rates, as a result of your loan being secured by using your home as collateral. This offers the lender more security, but be aware that if you default on home equity loan payments you risk losing your home. Contact your mortgage company to find out about special offers for current customers, but don’t sign up for loan consolidation with them until you have comparison shopped for your other options.
To start your loan consolidation comparison shopping, you need to get a copy of your credit report. You can obtain a copy from one of the three major credit bureaus, Equifax, Experian, or TransUnion. If there are any mistakes on the report, clear them up. Your credit is the main factor that determines your interest rate. Now you need to set a budget for your monthly payments. Allocate as much funds as you can afford towards paying off your debt, because the longer payments stretch out, the more money you will waste on interest.
Loan consolidation is a good way for many people with debt to save some time and money. We hope your loan consolidation goes as well as possible!