Discover the Benefits and Drawbacks of Private Loan Consolidation
Your federal loans can be consolidated into private ones but not the other way around
. So you need to explore if private loan consolidation will work for you. It has some good benefits but also carries a few drawbacks.
The main purpose why loan consolidation has been created is to help borrowers aggregate all their obligations into one easy to pay monthly bill. One of the biggest advantages of loan consolidation is its positive impact on your credit score. By consolidating your loans, you will be able to reduce all open accounts on your credit records. If you religiously pay your obligation on a consolidated account, then you are looking into a positive turn around of your credit score. In case you find an error in your credit report, you have to immediately contest it so that the error can be rectified as soon as possible.
Another good advantage of private loan consolidation is the big probability of realizing savings in the long term. Take note that private lending institutions can offer more attractive incentives for borrowers compared to the incentives provided by the federal government. For example, most federal programs normally offer a quarter point interest rate reductions if you make automatic debt payments using your financial institutions. In this aspect, private lenders offer better terms and incentives. They can also provide better loan deferments for hardships and other perks. A good example is provided by the practice of Sallie Mae. Sallie Mae offers a release for the original co-signer of the loan. So this is a good incentive for people who have risked their credit just to help you secure a student loan for instance.
Although private loan consolidation carries many benefits, it is also important to view its disadvantages. This is important so that you can better understand the full impact of private loans. The bottom line of getting a private loan consolidation is that you are stretching the terms of your loans. This can be compared to getting a mortgage loan refinance. In most cases, this could lead to higher costs despite the fact that your obligations may seem easy to manage on a monthly basis. If you are already close to completing the full repayments of your obligations, then private loan consolidation does not make any sense. That is because you are extending the terms of your loans that are nearing completion. It is also unwise sometimes to consolidate your federal loans into private ones. Remember that federal loans usually have better freeing terms compared to private loans. This is particularly true for loan deferments, forgiveness of remaining balances, and forbearance. All the benefits that you could have enjoyed from federal loans could be lost if you convert them into private ones. Losing the benefits of federal loans could be doubly hard if you have not yet completed your professional schooling or graduate studies.
You can lock-in a good rate through private loan consolidation. This option can offer good benefits for you. But take note that it also has a few drawbacks that must be considered.
Discover the Benefits and Drawbacks of Private Loan Consolidation
By: Rob Blake
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