If you took out multiple private student loans while in college, you are probably now swimming in a sea of paperwork each month. Having more than one student loan often means having to make payments to different lenders at different times of each month.
Another common challenge is that some your private loans may have variable interest rates, while others have fixed rates. And, it is highly likely that your loans are at different interest rates altogether.
Besides the complexity of having multiple private student loans to deal with, most grads also have trouble making the payments. Having to be responsible for multiple student loan payments is not something that many college students give much thought to during school. But, once graduation is over, reality sets in. And, the payments can easily run into the hundreds of dollars or more each month.
When Private Student Loan Consolidation Makes Sense
For graduates who have taken out multiple student loans and are now having trouble making their loan payments each month, private student loan consolidation can help.
Simply put, consolidation is the act of paying off all of one’s outstanding loans in full with the money received with from new, consolidation loan.
How Can Consolidation Help?
Consolidation loans can be helpful in many ways. First, they simply your life by making you responsible for just a single payment each month.
Next, they can actually lower your payments in one or both of two ways:
a. by lowering your rate
b. by stretching out your payments over more time, say from 10 years to 20 or 30 years
Finally, consolidation loans can be negotiated at a fixed rate, which means you can lock in your new low rate over the life of the loan.
How To Consolidate Private Student Loans With A Fixed Interest Rate
If you are wondering how to get the best deal on a fixed interest rate private consolidation loan, here are some tips that can help:
1.Calculate your current interest rate: In order to determine whether any would-be offer you get is worth going for, you are going to want to start by figuring out the weighted average of your existing loans’ rates. For example, if you currently have three loans at 5%, 3% and 2.5% interest rates, you would calculated the weighted average interest rate as follows.
First, figure out what percentage of your total outstanding balance is represented by each loan. Let’s say that the answer is 20%, 30% and 50%, respectively. Just multiply these percentages by the interest rate for each loan and add them together, as follows:
(20% x 5%) + (30% x 3%) + (50% + 2.5%) = weighted average interest rate
2. Figure out your ideal repayment period: Use an online loan calculator and plug in your current outstanding balance (total across all loans) and your desired new interest rate. Then, plug in different repayment periods like 20 years, 25 years and 30 years. See how each one affects both the monthly payment amounts and the cost of your loan.
3. Build a list of at least 5 private consolidation lenders: Now, it’s time to do your research. Make a list of at least 5 lenders. Don’t skip this step – remember, more offers is always better than fewer!
4. Contact and apply with all 5 lenders: Now, take the time to contact and actually apply for a consolidation loan with each lender. hint: be sure to apply for the same repayment period so that you can compare the offers equally.
5. Compare offers: Compare each offer you get separately, and be sure to read the fine print. The most important piece of information to look at is the interest rate of each offer.
Follow these tips to get the best-possible deal on a fixed interest rate loan.