It is more difficult to consolidate private student loans than federal student loans. The terms are not fixed, like federal loans, and consolidated student loans are only marginally profitable for the lender. Some private student loan lenders do not offer consolidation loans.
The key is to shop around for the best rate. The lender or lenders that issued your student loans may not be willing to renegotiate terms or consolidate loans. To find a lender willing to consolidate your loans and give you reasonable terms, devote enough time to research each potential lender and find the best deal. It may take time to find the right lender, but it could make a big difference in your financial picture.
Things to consider
- Length of loan ñ when you consolidate several student loans, you may unwittingly wind up paying far more in the long run by extending small loans over a longer period of time. Do the math and weigh the consequences. If you can lower your interest rate, it may be worth it, and anything you can do to lower monthly bill payments while you’re in a financial crisis is helpful in the short run. Bear in mind that you can always pay extra on the principle when your income goes up.
- Interest rates ñ private lenders are not bound by the same rules as the federal government when it comes to interest rates, and interest on even small loans can add up fast if only the minimums are paid. Make sure you get the lowest possible rates before signing.
- Fees ñ lenders may charge a conversion fee, yearly or monthly fees to manage your account. Be sure you know what all the charges are. Read the fine print!
- Payment schedule ñ before you shop for a loan, create a monthly budget and use it to decide what the best time of month is to make your student loan payment, and schedule it then. If the lender is unwilling to set your payment on a designated day, wait until the right time to sign the papers. Budgeting is crucial when money is tight.
How Credit Score Affects Loan Consolidation
Private student loans fluctuate with market influences like the prime rate and have varying interest rates for high and low risk loans, similar to that of credit cards and other traditional loan scenarios. The higher your credit score, the better deal you’ll be eligible for in terms of private loan consolidation. If your income changes and your have private student loans, shop for a consolidation loan immediately, before your credit is affected.
If you can’t pay your student loan bills, start making arrangements immediately. Make a deal before your credit rating suffers. After consolidating your private student loans, check the interest rates and terms every few years. A good repayment history may qualify you for interest reduction or other incentives.