It's a real shocker for many students who graduate and get a
hard look at the money they owe for student loans over the 4-5
years it took to graduate. The average debt a student graduates
with is over $50,000. That's like paying for a Corvette you don't
get to drive.
Another issue is that most students have borrowed money from
multiple sources so they have many different lenders to deal with
every single month. This adds to the problem as it's like being on
a treadmill since every week you have to make a payment to
somebody.
A student consolidation loan can help in both lowering your
monthly payment and the chaos of making payments to many lenders.
But you need to have your ducks in a row when you start looking
for a new lender to consolidate all your student loans into one.
Student loan consolidations take some research and effort since
you'll most likely be working with multiple student loans and
rates.
The recent meltdown in the banking industrial and the economic
downturn has not made it any easier. But the primary revenue
generator for most banks is loaning money so you have that factor
on your side. So now it's up to you to make sure you do everything
you can to make you a better potential customer.
Here's some common student consolidation loans questions and
answers many graduates are asking:
Where do I start?
The first thing you need to do is round up all your student
loan information on payment amount, loan term (years), interest
rate, and any special requirements (like early pay off penalties,
interest only options, etc.). You need to know exactly where you
stand now to compare to any possible student consolidation loan. You need
to have a baseline.
What are the best sources for a student consolidation
loan?
The first place to look is any lending institution that you now
have a relationship with and have a track record. If you've ever
bought a car, borrowed money for an item and paid it off, or have
an account in good standing (made payments on time) should be your
first choice. If you do have a good credit history you should also
consider 3rd party lenders. These are usually partnerships that
are made up of private investors. Due to the low interest rates
and stock market jitters, many investors are looking for ways to
make more than the 1-2% offered by many investments. If you have
no credit history, then the larger banks or credit unions are your
best option.
What factors make any student consolidation loan a good deal?
Just like any loan, look at the interest rate, term of loan,
and any additional costs. Be very careful at looking at the
details of the deal. There are ways that you can end up spending
more if you aren't careful. Origination fees, restrictive terms
like 2 late payments and you go up in interest, payoff penalties,
balloon clauses (in two years your payment amount doubles) or
other such inclusions can be ugly surprises. Read the fine print
and make sure you completely understand all of the requirements
and penalties. You might even want someone you trust and is
knowledgeable to review any loan offer.
I have no prior loans or credit history, so what can I do?
This is a big problem for many recent graduates. They've been
in school and haven't bought anything on credit. In fact, they may
have some credit cards that they've got high balances. Their
credit score, if they even have one, is low by most standards. Due
to the credit crunch going on right now, a score of 720 is
necessary to get a reasonable interest rate. Go read this article
on Fico
Score Range to learn about what is a good credit score and how
it impacts your interest rate on any loan. So if don't have any
credit history, and you have a low credit score, you need to deal
with that before you can get any kind of reasonable interest rate
on a student consolidation loan.
OK, you don't have any credit or the little you have doesn't
provide a good credit score. Don't panic, all this means is that
you need to get your credit squared away before you apply for any
student consolidation loans. Normally, a consolidation loan of any kind is
a non secured loan. That means there's no collateral to reduce the
risk. Collateral is a guarantee (an asset of known value) pledged for the repayment of a loan if borrower fails to pay off debt.
When you apply for student loan consolidations without collateral the risk is
higher, therefore the interest rate is usually higher. So your
credit score becomes the key element that determines the interest
rate. If you go buy a car, using the car as collateral, and you
have a good credit score, the interest rate would be around 6-8%.
The same loan, without collateral, may be as high as 13% interest.
With no collateral, the only thing they have to judge the risk
is your credit history which is scored. And that score not only
determines the rate, but if you can even get a loan. So before you
start looking for a student consolidation loan, make sure your
credit score is as high as possible.
Check with your local bank to see if they offer student
consolidation loans. Many have a special department that you can
get more information on student loan consolidations requirements, interest rates, and length
of term. If you already have an account and some credit history,
you may get a better deal.
If you need help in increasing your credit score, or what's
commonly called Credit Repair, go check out our Repair Your Credit
in 30 Days Guide. Since you will want to have a credit score of
over 720, it probably will take more than 30 days but it will
still be more than worth the time and effort. Click here to learn
more: Credit
Repair Guide.
