Loan Consolidation Guide
Definition of consolidation loan
The replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period, also called consolidation loan. also called debt consolidation.
Loan consolidation - legal definition
The combining of a number of loans into a single new loan. Consolidation typically extends your repayment period and lowers your monthly payments.
From Wikipedia, the free encyclopedia
Student loan consolidation offer individuals with student loans the ability to consolidate multiple Stafford and PLUS loans into one loan agreement.
The fixed interest rate on the consolidated loan is based on an average of the loans that are being consolidated, but the repayment term is set at 30 years, typically lowering the monthly payment. Since the borrower has the right to prepay student loans, the consolidation loan offers greater flexibility to the student.
Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.
Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.
