You might be thinking of a way to help you pay your outstanding student loans but this proves to be something hard for you to do as of this time because you are facing many financial issues that you find difficult to deal with. When dealing with student loans, you need to know that such can be availed in two different ways or manners: the private student loans and government student loans. Here, we will be talking about paying student loans which are offered by private lending institutions.
There are actually two ways by which you can pay your existing student loan – by way of refinancing and by way of consolidation. You may find these two to be synonymous but in fact, they are actually different from each other. By acquainting yourself with their differences, it will be easier for you to choose the one that works best for you.
Basically, refinancing entails the act of taking out a brand new loan so as to pay your existing loan or loans. For example, if you have three existing loans, the provider of refinancing solution will combine these three debts into one single loan that is usually divided into lower monthly payments. Ideally, choosing a refinancing solution gives you the opportunity to choose from among the various repayment terms and interest rates. However, you need to take note that providers of refinancing solutions usually qualify persons with a good credit rating. An applicant should also have a good financial track record especially when it comes to making good monthly repayments so as to be considered.
Refinancing covers both private and government (federal) loans. However, you have to take note that when a federal loan is something that you want to be covered, this would usually requires you to give up assets or rights that you do not want to be forfeited or liquidated.
Choosing consolidation as a way to cover your debts is something that does not necessarily require you to apply and take out a brand new loan for it. Here, all your debts will be combined together, making it as a single loan. The essential benefit of consolidating debts is that it gives you a much easier way to pay because you will only have to make a single payment rather than
making numerous payments for numerous loans. But you have to take note that consolidation also comes with drawbacks that need to be thoroughly understood right in the first place. When your debts are consolidated, you will be given payment options that you can easily do on a monthly basis. The downside is that it may cause you to shoulder a much higher interest rate. This is something that you should be aware of.
So, those are the things that make refinancing and consolidation different from each other. In the end, it will be easier for you to decide to choose the one that simply works best for your existing financial situation.