Understanding Student Loan Consolidation: A Comprehensive Guide

Understanding Student Loan Consolidation

Getting an education loan to study abroad is quite easy and preferred these days. A lot of students in India take education loans to fund their higher studies. Over time, students may accumulate multiple loans with different terms and conditions and interest rates, making it challenging to manage their debt. Student loan consolidation is a financial tool that can simplify repayment and provide financial relief. Let’s understand in detail what is loan consolidation and how it benefits students.

What is Loan Consolidation?

Ajay took an education loan from ABC Bank for studying MBA from Boston College. After completing the course he decided to pursue a certificate course in a similar field and took a loan for the same. Now, Ajay is liable to pay the EMIs for two different loans which is difficult to manage for him. In this case, Ajay decided to foreclose all the ongoing loans by taking a new loan of the required amount from XYZ Bank. Here, Ajay consolidated his loan and now he has to pay only one single EMI to XYZ bank who also offered him the loan at better interest. So basically loan consolidation is a financial tool used to close multiple debts and convert them into one. 

  • Loan consolidation helps you to get free from multiple loans, thus simplifying the repayment systems. 
  • You can get better interest rates which will reduce the overall cost of all the ongoing loans. 
  • You can even negotiate with your bank/lender over the repayment period and select the best-suited repayment plan subject to terms and conditions.

Also Read: Best Time to Apply for Education Loan Refinance 

Why Should You Choose Loan Consolidation?

Paying multiple EMIs for different loans can make you worried and keep you under stress. Also, whatever loans you are taking are recorded in your credit history and if you miss a particular EMI or delay it the credit score will decrease. This means that for future loans you may face issues as the bank will analyse the credit history which shows multiple credit enquiries and loans. 

Two or More LoansOne Loan After Consolidation
Separate interest rates making the loan costlyAffordable interest rates for only one loan thus saving you more money
Collaterals may be required depending on the loan amountIt comes as a personal loan and no collaterals are required subject to the terms and conditions of the bank
Multiple dates for EMI deductions One single EMI on a fixed date
Difficult to check the amortization and the loan cost due to multiple statementsEasy to calculate the cost as there is only one loan
Negative impact on credit score as chances of missing or forgetting EMI payment is highImproved credit score as it is easy to pay one EMI without missing or forgetting 
Very difficult to manage in case of cash crunch and financial issuesCan be managed easily even in case of financial distress
Variable interest rates that can increase in a rising inflation environmentFixed interest rates making the loan repayment amount stable, thus decreasing the overall cost

How to Apply for Student Loan Consolidation?

So now that you have decided to consolidate your loans you need to understand the process of loan consolidation. You should always compare the banks or financial institutions and then find out the best-suited plans for you. After all the research, proceed with applying with the selected lender. Check all the steps involved in applying for a loan consolidation:

Choose a Lender

Research and choose a renowned and reputed bank or financial institution which has a proven track record in loan consolidation services. Always compare interest rates, terms, and any additional benefits they may offer and then finalise it. 

Gather Loan Information

Collect and prepare a file showing all the necessary information about your existing education loans, including loan account numbers, outstanding balances, and interest rates. Also, you need to check with your existing lender about the foreclosure charges for the ongoing loans. 

Also Read: Benefits of Education Loan Refinancing 

Apply for Loan Consolidation

Fill out and submit the application form for student loan consolidation. The bank will review your application and assess your eligibility based on your credit score and repayment behaviour. Check with the lender if an online application is available. 

Review Terms

Once approved, carefully review the terms of the new consolidated loan like the interest rate, repayment period, and monthly instalment. If there is a scope for negotiation then you must go for it. 

Start Repayment

After consolidation, you will start making monthly payments on the new loan, as per the agreed terms. Make sure that you have foreclosed/repaid all the existing loans and obtained NOC (No objection certificate) from the previous bank/lender. 

Top Banks Offering Personal Loans for Debt Consolidation

There are a lot of banks in India that offers personal loan for debt consolidation. You can apply for an amount sufficient to close the existing education loans or any other loan. Check the top banks in India offering personal loans for debt consolidation.  

Banks/NBFCsRate of Interest
Bajaj Finserv Personal Loan11% to 37%
HDFC Bank10.50% to 24% 
Citi Bank10.75% to 16.49%
Axis BankStarting from 10.49%
ICICI BankStarting from 10.50%

Important Guidelines Regarding Student Loan Consolidation

Its not necessary in every case that loan consolidation will be the best option. It depends upon the terms and conditions of the bank regarding exiting loans, terms and conditions of the new bank offering loan for debt consolidation and your credit history. 

  • Always check and compare all the terms and conditions regarding both loans
  • Before taking the loan for debt consolidation compare the overall cost of repayment.
  • Maintain a credit score above 700 by paying all your EMIs on time. A single miss in EMI hits your credit score and it drops. 
  • Contact the existing bank first for a personal loan for debt consolidation at a lower interest rate. If they approve the loan, the entire process will get easier as the bank already has your records.

FAQs

Are loan consolidation and loan refinancing the same?

Loan consolidation is closing multiple existing loans and taking out one single loan. Whereas, loan refinancing is when you close the existing loan and take a new one with low interest rates to make the loan cheaper. 

Is it good to take a personal loan for debt consolidation?

If you have multiple ongoing loans attracting high repayment costs then you can take a personal loan for debt consolidation. Through this way, you only have to pay on a single EMI. 

What is the maximum amount of personal loan for debt consolidation that I can get?

The maximum amount of personal loans varies from bank to bank. You can get a personal loan for debt consolidation up to INR 50 lakh subject to the terms and conditions of the bank. 

Student loan consolidation can be very useful for Indian students burdened with multiple education loans. An easy repayment process and low-interest rates can make it simple to manage debt. However, it’s very important to research and compare options to ensure that consolidation aligns with your financial goals and circumstances. 

To know more about loan consolidation, refinancing, 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. 

Related Blogs
Best Banks for Student Loan Refinance 
Documents Required for Unsecured Education Loans
Decoding the Liberalized Remittance Scheme

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About Shekhar Suman

Shekhar is a versatile writer with a passion for sharing knowledge and creativity. With expertise in crafting informative blogs on study abroad and finance, Shekhar helps readers navigate the complexities of education and financial planning. Most of his writings blend the practicality of finance and the beauty of language, making a meaningful impact in both spheres. Beyond his professional pursuits, he finds solace in the writing Shayari.

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