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Written by Jennifer Summers
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Monday, 05 May 2008 06:44 |
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Page 2 of 3
Private Student Loan Consolidation
Similarities To Federal Consolidation Loans. Private student loan consolidation is similar to federal student loan consolidation in a number of ways. As with federal student loan consolidation, you will reduce your monthly loan payments, have a single payment, lower interest rate, and longer repayment period.
Differences From Federal Consolidation Loans. An important difference is that unlike federal consolidation loans, private consolidation loans are not guaranteed by the government. As a result, eligibility for such loans is based on your personal credit (or that of a co-signer). A higher credit score will increase your ability to get a lower interest rate, lower origination fees, and a longer repayment term.
Your Credit Score. Credit scores are calculated on a scale from 300 to 850. The national average credit score is 670. Credit scores over 700 are considered good. There are three credit bureaus that calculate your credit score: Equifax (www.equifax.com), Experian (www.experian.com) and Trans Union (www.tuc.com). If your credit score is less than 700, you may want to consider using a co-signer with better credit.
Variable Interest Rates. Unlike federal consolidation loans, private consolidation loans generally carry variable interest rates. This means that your interest rate will increase or decrease based on the market interest rate movements. Lenders base your rate on a benchmark (usually the Prime Rate) plus an additional margin (usually an additional 0%-7% or so). The better your credit is, the lower the margin you will be entitled to.
Origination Fees. Origination fees range anywhere from 0% to 9%, depending on your credit.
Repayment Periods. Repayment periods range anywhere from ten to thirty years, depending on your credit.
Shop Around. Each lender will examine your credit differently, and what they offer to you can vary. Thus, it is wise to shop around and negotiate the best deal possible for yourself. You can generally apply online or over the phone and get answer at that time.
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