What to Look for in a Loan
How do you go about choosing a federal consolidation loan? The key terms for federal consolidation loans are the same, regardless of the lender. No lender may charge any extra fees to the borrower, such as origination or application fees, or a prepayment penalty. Lenders are all subject to the same interest-rate formula, although they may charge less than the maximum allowed. Federal law also establishes the payback period.
When comparing federal consolidation loans, find out what benefits, such as a lower interest rate, are available from each lender. Ask the lender to estimate how much its particular benefits will reduce the total amount of all payments for the loan if payments are made on time. For example, if a lender offers a five-year loan with monthly payments of $100, then the total amount of all payments for this loan would be $6,000 (5 years × 12 months per year × $100 per month). Then find out the total amount of all payments for other lenders and compare those to the $6,000 figure offered by this particular lender. If another lender offers a number of less than $6,000, then that would be a cost savings. A figure higher than $6,000 means an additional cost. If payments are not made on time, then penalties may be charged, and this would increase the total amount of all payments on the loan.
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