A Short Guide to Loan
Consolidations
Most financial professionals consider loan consolidations as
the purchase of many different loans by a single entity or company in order to create
one large single loan. This idea behind loan consolidations is that company purchasing
the loans gets them from the other financial companies at a particular agreed.
The companies selling the loans make a small amount of money from this transaction.
The new company then takes on a series of new debts that must be paid. They
then levy their payment schedule and interest rate, and from here borrower pays
the company the new interest rate along with the principal of the loan.
The system of loan consolidations works in the same fashion
for student loans except that in this case, the intention of the companies is
usually much more altruistic. The student loans are offered by various companies
that are often government-backed and publicly held. While the same essential system is used for
students in loan consolidations, there are still some downsides or wrinkles
that impede the system. There are many different types of student loans and a
variety of loan issuers. Each one of these issuers has varying rates and
structures that set down specifically how the loan is given out or disbursed,
and just how the loan must be repaid. Because of this, it makes loan
consolidations truly difficult to do.
What to Look for in Loan
Consolidations
While loan consolidations’ terms and eligibility vary
between issuers, there are some general tips to follow when thinking of loan
consolidations.
Loan consolidations are best applied when the individual
loans start entering the repayment periods, typically six months after
graduation, or during the period when a student stops attending an educational
institution. This is also the time when the new graduate has a chance to see
just what their near financial future looks like and if it would be a better
decision to stay with the set 10-year payout which results in less interest, or
if loan consolidations would help for the sake of reducing monthly payments and
the price of overall increasing the loan.
Traditional loan consolidation was used more often when
student loans were set to a prime rate. If a student took out a loan at 7.2%,
and this primate later dropped after he or she started paying, the student
could choose to apply for consolidation which would create a new loan with an
ideally lower interest rate. Today, student loans are just set to a fixed rate,
although loans that were issued in 2010 had lower rates than loans issued a few
years earlier, making consolidation a way to lower the rate.
Loan consolidations can happen at any point of the life of
the loan, but the amount of possible consolidations is very limited. A change
in financial circumstance can necessitate needed changes in a loan. The idea is
to keep track of how loans fit into a person’s budget and just how loan consolidations
can benefit a customer.
