How it works
The Loan Consolidation Analyzer helps you determine whether consolidating your loans is a financially sound decision. The calculator compares your current loan situation with a potential consolidated loan. To do this, it calculates the total cost of your existing loans and the total cost of the new consolidated loan. For example, if you have a total balance of $25,000 at an average interest rate of 12%, with a monthly payment of $800, the current total cost can be calculated as follows: If it takes you 36 months to pay off the loan, your total cost would be $800 × 36 = $28,800. In contrast, if you consolidate your loans at a new interest rate of 7% over a term of 60 months, your new monthly payment would be calculated based on the new terms, resulting in a total cost of $800 × 60 = $48,000. By comparing these totals, you can see if consolidating your loans will save you money in the long run.
Formula
Current total = Monthly payment × Months to payoff. Consolidated total = Monthly payment × Term.
Tips
- Always compare the total cost of your current loans against the total cost of the consolidated loan.
- Consider the length of the loan term; longer terms may lower monthly payments but increase total interest paid.
- Check for any fees associated with loan consolidation, as these can impact your overall savings.
- Make sure to factor in your credit score, as it may affect the interest rate you receive on a new loan.
Frequently asked questions
- What is the current total cost of my loans?
- Using the defaults, the current total cost is $28,800.
- How much will I save by consolidating my loans?
- The total cost difference can be calculated once you input your new loan terms; in this example, it would be $48,000 - $28,800.
- How does my new interest rate affect my monthly payment?
- A lower interest rate generally results in a lower monthly payment, but the exact amount depends on the new loan term.
- Is loan consolidation right for everyone?
- Not necessarily; it depends on individual financial situations, including interest rates, terms, and overall debt management goals.