Loan consolidation refers to the activity of taking a single loan to repay all the existing loans. This will reduce the overall interest rates and extend the tenure of the loan amount. It is seen as a viable option to get rid of the high interest loan debts. Personal loans, signature loans and student loans are some of the commonly consolidated loans. This will help to reduce the monthly payments by converting a shorter term loan to a longer term. Normally this may take up to 30 years of time to repay the amount. The monthly installments are greatly reduced and the borrowers can save some cash in the future. However, due to the extended period of loan, the borrowers are forced to pay higher amount of interest.

Loan consolidation is offered through many programs such as FFELP, FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Direct, etc. The usual way of calculating the interest amount is the weighted average method on the consolidated loans. They are rounded up to the nearest 1/8th of the percent and not more than 8.25%. A popular myth prevails that people are entitled to do only one loan consolidation. In truth, people are allowed to do any number of consolidations as long as the new consolidation loan consists of at least one unconsolidated loan. However, the interest rates cannot be changed and will be fixed.

ADVANTAGES:

Some of the advantages of loan consolidation are

. The borrower can take 60 days of time to start paying the loan amount from the disbursement of loan.

. It enables the option to switch from multiple payments in to single payment.

. Benefits like extended repayment, graduated repayment, income contingent repayment options are available.

. The borrowers can lock the lower interest rates during the grace period.

DISADVANTAGES:

. If the borrower consolidates during the grace period then he has to repay immediately and will be losing the remaining grace period.

. The benefits on interest rates and subsidized loans will be lost.

. This will be reflected in the credit history.

. The borrowers might lose few positive amnesty provisions on certain loans.

It is seen that most of the students are the maximum number of beneficiaries by the Federal Loan Consolidation. They offer loans to students having a longer term of repayment with a lower interest rate. Even students will bad or poor credit rates can apply for this loan. They do not have to provide any form of guarantee or credit card information and rates. The best of all is that they do not have to pay any fees.

BENEFITS OF FEDERAL LOAN CONSOLIDATION

. Students can be hopeful as the government will give the guarantee for such loans.

. Reduced interest rates, longer duration of payment and a lower monthly payment option.

. Even if the student missed to pay an installment, it will not give any horrible experiences as the payment is very low.

. They can fix up dates on which the payments can be collected.

. Students who are prompt in their payment will get incentives and rewards from the government.

. Credit rating is improved gradually.

. A student can save up to 60% of monthly payment and the tenure can be extended to 30 years if the loan amount extends $10000.

One has to be very careful while choosing the loan consolidation lender. They are entitled to take federal loan only once and the lenders should be in a reachable distance. A federal program helps the individuals to save thousands of dollars and these kinds of loans will be available only for a shorter period of time.

Loan consolidation should be done wisely as it can save few thousand dollars. One must have the basics in knowing about the variable interest rates and other hidden charges available. Read the terms and conditions carefully before inking the deal. The lenders are willing to have a rendezvous meeting with the clients to negotiate for the best deals. They also understand that the borrowers need some form concession as they are deeply hurt due to the credit crunches. This option remains the beacon of hope for many defaulters. This also seemed to be a viable option to improve the credit score and thus creating a better financial life. Problems do not persist forever if the borrowers can stick to the fundamental financial rules and lead a victorious life.