Financial jargon was meant to be confusing. Isn’t that frustrating? Even more so, financial jargon was designed by banks to intimidate everyday consumers so they avoid reading critical (and often burdensome) terms and end up owing banks more money in interest on their credit cards and loans. Infuriating! This is why the best thing borrowers can do is to educate themselves on their loan terms, as well as important terminology.
Two loan terms to know that can save you a lot of money over the life of your loan: consolidation and refinancing. Know them like the back of your hand.
What is Loan Consolidation?
Consolidating is exactly what it sounds like: condensing multiple loans offers into one single loan. Many like this option because it offers fewer bills and monthly payments to keep track of, monthly payments are often lower when you consolidate, and if you have a variable rate loan you can consolidate into one fixed rate (meaning you’ll only pay at one agreed upon interest rate, instead of whatever the market interest rate is.)
There are a few different options depending upon your type of loan. Consolidating private loans can often substantially lower interest rates for borrowers and save money over the life of the loan.
How is Refinancing Different?
Refinancing happens when you apply for a new loan (often at a much more competitive interest rate) and use that loan to pay off your other loans. Think of it as the loan equivalent of doing a balance transfer to a lower interest rate credit card. Refinancing is financially savvy, given that a lower interest rate means a lower monthly payment, less time to pay back the loan, and less money paid in interest. People with federal loans shouldn’t get too excited, though; only private loans can be refinanced.
Still, many avoid refinancing because of the hassle it takes to qualify and apply for a new loan. Don’t let the inconvenience of a little extra work dissuade you from exploring refinancing options. The extra money you get from saving can be spent on the things you love, like hobbies, fun activities, or other discretionary items, or to get ahead on saving for the future such as a house or a life-changing trip.
Choosing the Option that Is Best for You
If you decide to get financially smart and either consolidate or refinance, you should never accept your first offer. Achieve Lending is a great search engines for loan refinancing offers that can take a lot of the front end hassle out of finding a competitive offer.
Achieve Lending is super simple to use, and it takes just 30 seconds to find multiple loan offers unique to your situation. Click here to see the tool in action.
Depending upon your salary, other economic factors, how many loans and their interest rates and how aggressive you’d like to be with your debt repayment, you may want to consider either consolidating your loans, or refinancing for a better interest rate. After all, who doesn’t want to save money?
Allen Kors is the Founder and CEO of Achieve Lending, the first ever search engine for education loans. Designed to help both traditional and non-traditional students find the best lenders for student loans, Achieve Lending offers users a free online portal to search, find, and compare student loans, often in as little as 30 seconds.
Kors founded Achieve Lending at just 27 years old after six years of working in the finance industry. His resume boasts time spent at the world’s premier financial firms, with positions in investment banking, private equity, angel investing, and consulting. After leaving his job in angel investing to pursue entrepreneurship and form his own financial technology company, Kors now aims to build the ‘Kayak’ for education loans and empower Achieve Lending users by providing financial education on the loan process and terminology.