Loan Consolidation Rates - Comparison Shopping
Loan Rates are constantly changing, so it is best to shop around for the best rates. When shopping for loan consolidation rates make sure that you compare apples with apples and oranges with oranges. Loan consolidation rates differ between products and of course by the quality of the borrower. Not everyone is a good candidate for a loan consolidation. You are a good candidate for loan consolidation if you fit into one of these categories:
- You have student loans
- You have good credit
- You have good credit and equity in your house
Before you look into these loan consolidation solutions, make sure that you have explored all the debt relief options and are choosing the one best for your situation. Learn about loan consolidation rates including:
- Finding the Right Product
- Mortgage Cash-out Refinance Rate
- Personal Loan Consolidation Rates
- Student Loan Consolidation Rates
Finding the Right Product
Loan Consolidation is not a solution for everyone. Before you look for a loan, review your financial situation. If you already have a personal budget, then your job is easier. If not, then start by making one, and use the Bills.com personal budget guide to help you. Make sure you are familiar with your cash flow as well as net worth.
Lenders will evaluate your situation based on your Debt to Income Ratio, Credit Score, and Credit History. If you are weak in any of these areas, loan consolidation will probably not be a good alternative. Consolidating debts with an expensive loan is not going to solve your debt problems.
In most instances, you need good credit to take out a loan. Mortgage loans, personal loans or private student loans are not available for customers with bad credit. If you have bad credit, you can look into consolidating your federal loan or look for other debt relief options.
Mortgage Cash-out Refinance Rate
Your options for a loan consolidation mortgage loan are to do either a cash-out refinance or a home equity loan. In either case, you will need sufficient equity in your house and a good credit score. An advantage of a mortgage cash-out is that you can have a long-term payment, at a reduced interest rate. The main disadvantage is that you are transferring unsecured debt to your property, so in the case of a default the lender has immediate recourse against your home.
Conventional Loans: You will need a credit score over 660, although many lenders will require at least 720. A LTV, including your new loan should not exceed 80% or perhaps 90% with private mortgage insurance. Interest rates are very low. According to Freddie Mac's weekly survey, a 30-year FRM (fixed rate mortgage) is about 3.98% with a 0.7 origination fee.
FHA Loans: FHA loans have less strict credit guidelines, although lenders may retain their own stricter underwriting requirements. In addition, FHA loans allow for a LTV up to 85%.
Personal Loan Consolidation Rates
Personal loan consolidation is an option for people with good credit. The main advantage is that instead of paying off numerous credit and retail cards, you make only one payment, with a set payoff schedule. Be careful not to run up new credit card debt.
Personal loans are available through big banks, lenders, credit unions, peer-to-peer lenders and other online lenders. Be careful to shop around. Pay attention to the interest rate and other fees. Predatory lenders will have many costs that make a personal loan very expensive. Bad credit loans, if available are very expensive and do not solve real debt problem.
Do not expect to find cheap personal unsecured loans. Unsecured personal loans are offered for a short term, between 1-5 years. In addition to the interest rate, check all other fees associated with the loan. Don't be fooled by low rate quotes. Those are only for the people with excellent credit, and usually for the very shortest terms. Major lending institutions offer personal loans, such as Citibank, Wells Fargo, for rates starting at about 10.3%. US Bank offers loans exclusively to their customers.
Here are a few examples of Rates and general terms. Remember, these are constantly changing, and shop around:
- The Santa Cruz Credit Union provided information about their personal loans, as of March 2012. They offer personal loans up to $20,000 for a maximum of 4 years. Their rates vary from 13.49% - 18%. In addition to providing proof of income for the past 30 days,"you need to have excellent credit file 730 or higher with comparable credit history, stable job for over 3 years, low debt to income ratio and usually good collateral".
- Lending Club offers personal loans. According to a customer representative, you must have a minimum FICO credit score of 660, based on a TransUnion credit report, a 25% Debt to Income Ratio, and a clean credit history (no bankruptcies, public judgments, etc.). The Lending Club Web site indicates the maximum loan offered is $35,000 and rates vary between 8.9% and 24.54% as of April 2012.
Student Loan Consolidation Rates
If you have federal student loans, then read the Bills.com article about federal student loan consolidation. Make sure that you are familiar with all of your repayment and consolidation options, as these programs change and are tailored for different types of government loans.
If you have private student loans, then loan consolidation can bring the following advantages:
- Lower interest rate
- Lower monthly payment by spreading the payments over a longer term
- Release a co-borrower.
Finding a private student loan consolidation may not be an easy task as many big lenders have discontinued their programs. A review of different lenders in April 2012 revealed that Sallie Mae, Discover, Chase, PNC and the Bank of America are not offering private student consolidation loans.
Two institutions that are offering loans include Wells Fargo and Credit Union Student Loans. Here are some of the loan consolidation rates and terms as of April 2012:
- CU (Credit Union) Student Loan Org.: They currently offer loans to graduates from participating schools. The maximum offered is $125,000. They only offer variable interest rates. The rates vary from Prime + 1.5% (excellent credit), Prime + 2.5% (good credit), to Prime + 4% (fair credit).
- Wells Fargo: The maximum loan is $125,000. Their private student loan consolidation rates range, as of April 2012, between 7.99%- 12.79% for fixed rates and 4.25% - 9% for variable rates.