A Guide To The Pros And Cons Of A Private Loan Consolidation
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Maybe you already have a private loan from school so you know how they work. A number of people reading this article however are wondering if it makes sense to go with a private loan consolidation even though they currently have a federal loan. One thing to keep in mind before we discuss the pros and cons is that private loans can never be consolidated into federal loans but federal loans can be converted into private ones. This is just the way the way laws governing these specialized financial instruments work.
The pros of any consolidation include getting all of your loans into one payment. Consolidating can also help to improve your credit score and history because instead of having nine open accounts you would just have one. As long as you stay current with the new private consolidation loan you will have the credit bureaus on your side by establishing a great history. They are not out to get you, they just report what they have sent into them by banks. So if you notice that there is a mistake on your credit report about your loan then take care of it right away.
There are many opportunities to save money on getting a private loan. One is that private lenders are able to offer more incentives than the federal programs offered. Currently the federal consolidations are only offering a .25% interest rate decrease if you make your payments automatically through your bank account. With private ones they can offer you lower interest rates, deferments for extreme situations and other possible benefits. Sallie Mae, for example, is offering a benefit that includes having the cosigner released from the loan which is huge for you and especially for that person.
When consolidating your private loan you have to look at the cons as well. Ultimately, you are actually extending the repayment of your loan just as you would if you were refinancing your house. This in turn will cost you more money but may save you peace of mind having one payment instead of nine. If your loans are going to be paid off soon then you are probably not going to want to consolidate them because it will just extend the life of your loan. Another reason why going from a federal loan to a private loan consolidation may not work for you is that federal loans are much more lenient with certain benefits such as deferment, forbearance, and debt forgiveness. You could lose these types of easier to get benefits when you consolidate, which could be detrimental if you are still in medical or dental school.
Your goal at the end of all of this should be to secure a lower interest rate and make sure it is in the best interest of your loan. You will only get one shot at consolidating your loans so research into each private lender is of the utmost importance.
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