A consolidation loan is a gathering up of all the loans you have taken with various student loan lenders and paying them all off with a loan from a consolidation lender. So, instead of having a number of creditors, each with a different amount due, each with a different day of the month due, and each with a different interest rate; you can have one bill due per month.
Finding a Student Loan Consolidation Lender
Choosing the wrong consolidation lender could potentially ruin your monthly budget and that could lead to late payments, late fees, even default. Late payments or defaults will cause very bad marks on your credit history and that is not the way you want to start life in the real world. The following guidelines should help.
Private Vs. Federal Student Loan Consolidation Lenders
If all your original loans were taken from federal sources, you would be wise to seek a consolidation lender who works under the auspices of federal student loan programs. These lenders usually are more convenient because of their understanding of federal student loan programs. They also tend to offer lower interest rates than private student loan consolidation lenders.
On the flip side, if the loans you wish to consolidate are from private student loan lenders, you should probably opt for a private student loan consolidation lender. When asked to consolidate non-federal loans, federal loan consolidation lenders will not usually come up with the best interest rate. It is always wise to shop around and compare rates and fees.
Another consideration is that private lenders tend to exert more requirements than federally connected lenders. Private lenders base their approval process on credit histories. Having just graduated, you may not have much credit history. Because of this, the lender may request a cosigner. His or her credit history will be scrutinized.
Private student loan consolidation lenders tend to determine interest rates based on two factors: Your credit rating and the interest it allows along with the market rate this type of loan is presently demanding. The higher your credit score, the lower the interest rates. Shop around, various lenders will calculate interest rates a little differently.
Private lenders may offer you a consolidation loan with variable interest rates, determined yearly by the caprice of loan markets. You would do yourself well to find a lender willing to grant a loan based on a fixed interest rate so you avoid the loan market fluctuations.
Most federal lenders will calculate an interest rate that is a weighted average of the individual interest rates you are now paying to each company.
Terms and Conditions
Just as as you must when seeking any type of loan, you should keep your eye on certain considerations.
Loan Amount: Do not agree to a consolidation loan if it will not completely retire all your outstanding student loan amounts, including any odd fees or adjustments.
Fees: These are often determined by your credit score, or the score of your cosigner. They are usually referred to as application fees or origination fees.
Deferment Time: This is the time between the satisfaction of the amounts owed the various lenders and when you must start payment to the consolidator. The longer the better.
Maturity: This is the amount of time the lender will give you to satisfy your obligations. The larger your monthly payments, the sooner you can retire the debt. Of course, the lower your monthly payments, the longer you will be in debt and the more interest you will pay.
Cosigner: If at all possible, try to avoid having a cosigner. This further complicates the process. Sometimes it is hard to find a trusted individual who is willing to assume the responsibility.