Pros and Cons of Student Loan Consolidation: When you plan to study abroad you might end up taking an education loan which is indeed a good and reliable option. However, it’s not necessary that you will take only one education loan and repay it. For example, when you complete your bachelor’s degree from a foreign university and plan for a master’s again you may get another education loan to pursue postgraduation. Now you have to deal with a total of two loans and that’s why you decided to take a personal loan for debt consolidation.
However, like any financial decision, it comes with its own set of pros and cons. In this blog, we’ll explore the advantages and disadvantages of student loan consolidation for Indian students.
| Pros of Education Loan Consolidation | Cons of Education Loan Consolidation |
| Simplified Repayment Structure | Limited Loan Amount |
| Low Rate of Interest | No scope for a subsidised rate of interest |
| Extended Loan Duration | Longer Repayment Period resulting in payment of more interest |
| Fixed Rate of Interest | High Processing Fee |
Table of contents
Advantages of Student Loan Consolidation
Student loan consolidation is very useful when you are dealing with multiple loans. It allows you to convert all your existing loans into one single loan thus making your repayment cost cheaper. Let’s check some of the major advantages and disadvantages of student loan consolidation:
Simplified Repayment
One of the most significant benefits of loan consolidation is that it simplifies the repayment process. Instead of managing multiple loans with varying due dates and terms, students have to deal with a single monthly payment. After you get a personal loan for debt consolidation you are free from paying multiple EMIs on their specified date.
Also Read: Credit Score and its Impact on Education Loan Refinancing
Potentially Lower Interest Rates
Consolidating loans may offer the opportunity to secure a lower interest rate on the new consolidated loan. This can result in savings over the life of the loan. For example, you are paying 15%, 14% and 13% separately for 3 loans. When you will choose to consolidate your loans you only have to pay interest rate from one single loan.
Extended Repayment Terms
Many consolidation options provide extended repayment terms, which can lead to lower monthly payments. This is particularly helpful for recent graduates who may be dealing with entry-level salaries. As you have a new job after college it may be difficult to manage 2-3 EMIs at a time. Through student loan consolidation you can get it reduced and you have to pay only one EMI.
Fixed Interest Rate
With student loan consolidation, borrowers can lock in a fixed interest rate, protecting them from interest rate fluctuations in the future. Usually, the education loan comes with a floating rate of interest which may get higher in a rising inflation environment. When you take a personal loan for debt consolidation you get a fixed interest rate which ultimately helps you to save more money.
Also Read: Benefits of Education Loan Refinancing
Improved Credit Score
Multiple EMIs are tough to manage and you may miss making the payment on the due date. This will negatively affect your credit score and it will drop. Hence, student loan consolidation also helps you to improve your credit score by reducing the EMI amount and making timely payments.
Disadvantages of Student Loan Consolidation
Financial decisions are not very easy to make especially when you are dealing with loans. Student loan consolidation is a good option but comes with some limitations. It’s not necessary that a student can get a personal loan for debt consolidation in every case. Let’s understand the disadvantages of student loan consolidation.
Limited Loan Amount
The bank will offer you a personal loan for debt consolidation. Since it is a personal loan the amount will be limited up to INR 25 lakhs or 50 lakhs depending on the bank. Most of the banks have an upper limit of INR 30 lakhs or even less. Hence, if your overall loan amount exceeds the limit of the personal loan offered by the bank it may be a problem.
May Not Be Suitable for All Loans:
Every bank has its eligibility criteria for providing personal loans for debt consolidation. Not all education loans are eligible for consolidation. Some loans have unique terms or benefits that could be lost through consolidation. Also, as discussed above the amount may fall short in comparison to your existing education loan.
Longer Repayment Period
When you are consolidating all your loans and converting them it one loan then the repayment period will increase. While an extended repayment period can lower monthly payments/EMIs, it may result in paying more in interest over the life of the loan. This can make your overall repayment amount higher.
Also Read: How to Find Best Education Loan Refinancing Rates and Lenders
Additional Fees
A lot of banks and NBFCs charge around 3-5% of the total loan amount as a processing fee. The higher the loan amount more will the processing fee and it will be deducted at the time of disbursement of the loan. It’s important to factor in these costs when considering student loan consolidation.
FAQs
Both loan consolidation and refinancing have their advantages and disadvantages. If you have more than one loan then consolidation is a better option.
The banks offer personal loans for debt consolidation with a limited amount. You can apply for the same.
When you take a personal loan for debt consolidation your existing loans get foreclosed with that amount and now you will be paying EMI for the personal loan.
Student loan consolidation can be a valuable tool for Indian students dealing with multiple education loans. It offers the advantages of simplified repayment, potentially lower interest rates, and improved credit scores. However, it’s very important to consider the potential drawbacks such as longer repayment periods and additional fees.
To know more about student loan consolidation, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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