What are loan consolidation and loan refinancing?

If you have ever learned about the loans, you should probably have faced the terms ‘consolidation’ and ‘refinancing’. They may sound complicated, but these terms sometimes mean a kind of help for a borrower. That’s why we’d like to tell you more about them.

What is consolidation?

Combining several different loans into one means consolidation. There are two types of consolidation in general. The first one is the ‘government’ consolidation, which means combining your loans by the government. The second one is the consolidation, made by a private lender. Each of them has its own consequences.

For example, the government consolidation doesn’t actually save your money, because it has weighted average interest rates of all of your loans. It may also mean lengthening of your loans, which increases the total debt of yours.

Another solution, the private consolidation, is the same thing, as a federal consolidation, but it may provide you with a new, lower interest rate that actually saves your money. That’s why a private consolidation may sound like a rescuing plan for some borrowers.

What is refinancing?

This term is a little bit different, but it also may save your money in total. If your financial situation has improved (since a time when you signed your first loan or loans), you may get a new loan that will refinance the previous ones. It’s great for your pocket, because due to a better financial situation you may get a new interest rate. That actually is refinancing – the opportunity to pay off your old loans by getting a new one.