Debt consolidation can simply be from a number of unsecured loans to another unsecured loan, but more often it is a secured loan against an asset that serves as collateral, which is the most often a house (in this case a mortgage is insured against the house.) The collateral for the loan allows a lower interest rate than without it, as collateral, the asset owner agrees to allow forced sale (foreclosure) of the assets to repay the loan. The risk for the lender is reduced so the interest rate offered is lower.
Since the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. Sometimes these fees are near the state's largest payments of mortgages. In addition, some unscrupulous companies knowingly wait until the client has been supporting himself in a corner and must be obtained in order to consolidate and pay the bills, which are behind the charges. If you do not refinance they may lose their home, so they are willing to pay for debt consolidation allowable amount paid. In some cases, the situation is that the customer does not have the time to buy another lender with lower costs and may not be fully aware. This practice is known as predatory lending. Certainly many, if not most, debt consolidation transactions do not involve predatory lending.
What is a Federal Student Loan Consolidation?
A federal consolidation loan is a loan that you can use to pay all or part of your original eligible federal student loans. You combine (consolidate) your existing federal student loan debt into a new loan.
What are the conditions for a Federal Consolidation Loan?
o The interest rate on federal consolidation loan is fixed, which means it will not change throughout the term of the loan even if interest rates on federal loans, other up (or down).
O rate is calculated as a weighted average of interest rates right
existing loans, rounded up to 0.125%, in which the cap is 8.25%.
o There is no fee to apply for or receive a consolidation loan from the federal government.
o The repayment term is 30 years, depending on the amount of your loan, and no prepayment penalty.
Why should you consider consolidation?
When a federal consolidation loan, you can benefit from:
Or lower monthly payments
or fixed interest rate
o Only one payment for your federal loans each month
ò referrals new or renewed
Since you have the possibility of up to 30 years to pay off your loan, monthly payments can be significantly reduced with consolidation loan, even if you pay more total interest for the duration of the loan.
When should you consolidate?
Only loans that have the grace, deferment, or repayment of patience can be combined into a Federal Consolidation Loan. Loans that are in-state school can not be verified.
There are no time limits. However, federal Stafford loans, which are the grace period (or suspension) is less than the repayment of loans (or patience). Since the current interest rates are used in the calculation of the weighted average, fixed-rate consolidation loan of your own, you will save money in the long run, if you consolidate while in grace period or deferment. (If you want to connect, when you have the grace period, to keep in mind that a grace period will be deleted when the consolidation loan was granted, and start the refund.)
Student Loan Consolidation
In federal student loans in the United States the consolidated somewhat differently, as federal student loans are guaranteed by the U.S. government. In a student loan consolidation federal loans existing purchased and closed by a loan consolidation company or by the Department of Education (depending on the type of borrower of federal student loans). Interest rates for consolidation are based on rates of student loan interest this year, which in turn is based on the rate of 91-day Treasury bills at the last auction in May of each calendar year.
Student loan rates can vary from the current minimum of 4.70% and 8.25% maximum Federal Stafford loans, 9% for PLUS loans. The current consolidation program allows students to strengthen once a private lender, and reconsolidate only once the Department of Education. Once the student has consolidated their loans, the loans have been adjusted based on the year they consolidated; stabilization does not alter this rate.
Federal student loan consolidation is often referred to as refinancing, which is incorrect because the loan rates are not changed, merely locked in. Unlike private debt consolidation sectons, the student loan consolidation does not incur for the borrower, private companies make money on student loan consolidation, to collect federal subsidies.
Student loan consolidation can be useful for the ratings of students', but it is important to note that not all federal student loan consolidation companies report the loans to all credit bureaus; SLM Corporation (formerly Sallie Mae) does not depend on Experian and TransUnion, which means that students have different credit scores Equifax, TransUnion, and Experian.