Loan Consolidation - Potential Drawbacks to Loan Consolidation

There are a few drawbacks to consolidating of loans. You can forfeit any original repayment incentives. Depending on the debt consolidation company you use, rebates for early repayment of a loan are used as incentives. (Pertaining to Student Loans - Consolidation) one company lists all you can gain in incentives by using their company. They advertise their interest rate to be 3.5%. You can reduce you payment up to 60% from the original debt amount. You can gain an additional interest rate reduction for using their borrowers plan. There is not penalty for early repayment. No credit checks. No co-signers needed. No fees. The interest is Federal Tax deductible. You get an additional 1% discount after making so many payments, a .25% discount for making payments electronically. After all that one might wonder how in the world the company can be making any money at all! It pays to do your research for the company with the very best rates but you’ll need to be aware of all costs involved and make sure there are no hidden costs.

There is a possibility that deferment options could be eliminated (pertaining to Student Loans - Consolidation in particular) along with the potential loss of grace period. You could definitely be paying more in the total interest over an extended repayment period. If, of course, being able to make your payments is the reason for consolidating, then the consolidation is the lesser of the two evils!

If you are married, you assume additional liability under spousal consolidation, for both people are equally liable for the debt. (Remember the “for richer for poorer” lines in the wedding vows?)