A private consolidation loan may reduce the monthly payment by increasing the term of the loan. But, while this may make the monthly payment more affordable, it does not save the borrower money. Increasing the term of the loan often leads to more interest being charged over the life of the loan.
However, depending on the borrower’s credit scores, consolidating private student loans may lead to a lower interest rate. Generally, a student’s credit scores decrease each year the student is in school because the student’s credit utilization has increased. A lower credit score yields a higher interest rate. By the time the student graduates, the interest rates are at their highest point. So, if a student consolidates his or her private student loans soon after graduation, it may lead to a higher interest rate. But, if the borrower gets a good job and manages his or her credit responsibly, repaying all debts (not just the student loans) on time, as per the repayment agreement, the borrower’s credit score should improve. This, in turn, may allow the borrower to qualify for lower interest rates a few years after graduation.
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