Posts Tagged ‘Student Loan Consolidation’

Loan Refinancing- Is It A Good Option To Refinance?

Posted in Loans on July 30th 2010
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By refinancing an existing loan you can decrease the debt you owe by taking advantage of lower current interest rates. Whether its a student loan, home loan, or an auto loan, refinancing can often save you money. Refinancing is a good option for people with good credit or even for people with not so good credit. It can reduce a persons debt by lowering monthly payments and it can increase or reduce the length of a loans term. Refinancing can also be claimed as a tax reduction and can even increase a homes equity if it is a home loan that is being refinanced.

Student loans can be consolidated, which allows the student to combine multiple loans into one single loan from one lender. Each loan that a student takes out, has its own interest rate and it often varies widely from the others. By combining the loans, the student only has to pay one interest rate, which can lower their student loan debt substantially. Student loan consolidation is basically just combining debts into one. The balance of the original loans are then paid off by a loan consolidation lender.

Refinancing a home loan is a good option for homeowners that have lived in the home for a few years. If the homeowner has good credit and has a good history of making the mortgage payment on time there is a good chance that they can refinance their mortgage for one that has a lower interest rate. This can lower their monthly payment since the homeowner will be paying less interest. The equity in their home will be increased since more of their mortgage payment will go toward the home instead of to interest. Also a home loan can be claimed as a tax deduction, allowing the homeowner to keep more of their hard earned money each year.

Auto loans can also be refinanced to lower a persons debt. By refinancing an auto loan a person can lower their monthly payments and can reduce or extend the length of the loan. In order to refinance a car loan the amount of debt owed on the vehicle cannot exceed its worth or be more than five years old. It is best to refinance after paying off some of the debt owed by paying more than the monthly payment each month. Also in order to refinance a car loan the debt owed cannot be less than 7500.00. Refinancing a car loan is similar to consolidating a student loan, because a lender pays off your original loan and gives you a new loan at a lower interest rate.

Refinancing any type of loan will usually reduce a persons debt especially if they have good credit. By taking advantage of currently lower interest rates refinancing can be a good option for anyone who has been paying on the loan for a little while, has good credit, and makes their monthly payments on time. Even with bad or not so good credit, refinancing is still an option but finding a low enough interest rate may be more difficult.

Improve Your FICO Score with Student Loan Consolidation

Posted in Loans on June 11th 2010
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Consolidating student loans is one of the most effective ways to improve your FICO score dramatically. A FICO score is perhaps the most important factor in shaping your financial future. Just a few additional points on a FICO score can literally save tens of thousands of pounds over a lifetime by locking in low interest rates on houses, cars, and other items purchased with credit.

How FICO scores are determined

A FICO score is derived from a complex algorithm that weighs different aspects of your past and present financial situation in order to predict how good of a credit risk you are likely to be in the future. Each factor is weighted differently depending on importance with 35% of the score based on payment history, 30% based on the amount of debt owed, length of history contributing 10%, new credit 10%, and types of credit 10%.

How student loan consolidation directly improves your FICO score

Because the second heaviest weighted factor (30%) is based on the amount of debt owed, reducing this amount can make a drastic impact on your credit score. Lenders also look at debt to income ratio when determining the amount of credit they will make available. Particularly for those who are just starting their careers, the lower monthly payments that result from consolidating a student loan can make a highly favorable impact on debt to income ratio.

Borrowers who refinance their student loan often save well over 50% on monthly payments. For example, the payment on a 30,000 student loan before refinancing is approximately 350. After consolidating, the average payment is around 166, a savings of more than 2,200 per year.

Indirectly improving your FICO score with student loan refinancing

Young adults who are just leaving school and starting their lives, families, and careers already have the chips stacked against them when it comes to finances. The majority of people rely on credit cards to help leverage cash flow in the years following college. But credit cards, especially for those who can’t pay off the balance immediately, can become a source of angst and take a toll on your FICO score.

By choosing to redirect the money saved from student loan consolidation, borrowers can pay down high interest credit debts. Using the above example, redirecting 2,200 per year toward paying off high interest credit card debt can add up significantly. The total over 5 years can result in 11,000 worth of high interest debt repayment.

How student loan refinancing works

Student loan refinancing works by first locking in a low fixed interest rate as opposed to the variable interest rate customary of most government loans. Once a specific repayment amount is determined, the loan is then spread out over a longer period of time, resulting in a lower monthly payment. There are no penalties for early repayment of a consolidated student loan, so borrowers can leverage the lower monthly payments to improve their FICO score and pay off high interest debts early on.

Benefits of improving your FICO score

The effects of a student loan consolidation on a FICO score should not be overlooked. Consolidating student loans is one of the simplest ways to make a huge improvement to your score. The ability to secure credit at low interest rates will most definitely have an impact on your financial future and the lifestyle you are able to lead. With a better FICO score you can have access to higher limits of credit, get loans faster, and reduce the amount of your hard-earned income being spent on interest payments.