The formula for calculation of payment per month is PMT = P X (APR/n)/ [1-
(1+APR/n)^ (-ny), where p is loan taken, APR is rate of interest is always equivalent to 1
Payment in two different cases, first one normally and then consolidating all the loan
Amounts together and calculating the effective payment required to be done along with
Proper comparison between the two kinds. The objective of doing that is to hold a picture
About pros and cons of consolidation and why someone should go forward with
Consolidation. The situation is:
$15,000 with an APR of 8% for 15 years
$10,000 with and APR of 7.5% for 20 years
$5,000 with an APR of 9.5% for 10 years
Using the formula stated above I have these results:
After consolidation the monthly payment (PMT) becomes $260.35
Total monthly payments without consolidation is $288.6
After observing all the results, I can conclude that monthly payment consolidated is less
Than the monthly payments normal by a margin of $28.25 and on the other hand total
Payment overall in consolidated case is greater than the normal case by a margin of
$9583.96.
The reason for less monthly payment in case of consolidation for 20 years is like in this
particular case the duration that we see is greater. In normal case if we take out the
Mean or the average of the duration, it comes out to 15 years. So with greater duration the monthly
Installments gets spaced out well and payment per month decreases.
Payment over life on these 3 loans after consolidation is $62484
Overall payments without consolidation is $52900.04
Pros of doing this consolidation is like, less monthly payments with more
Duration and it stands good for those who are looking for an option of less monthly
Installments. A Consolidation Loan allows an individual to consolidate multiple
Education loans into one loan. The result of that is a single monthly payment instead of
Multiple monthly payments. To me it is much better than in case where the monthly
Payments are more and sometimes it becomes unbearable.
Cons of going towards consolidation is that the total sum of money payable at the end
Of the tenure is more than in normal case. The reason is more APR and greater
Duration. The APR we see in case of consolidated payments is much more than the
Normal case. With a greater duration it keeps on pilling. Moreover, there is a
Chance of losing on benefits from original individual loans like, rebate in interest
Rates, rebate in principal amount or loan cancellation discount which would have
Helped someone in reducing the cost of repaying the loan significantly. Once loans are
Consolidated they cannot be segregated until and unless the payment is over and the
Loan account closes.
In order to qualify for a Consolidation Loan, one must hold at least one Direct Loan or
Federal Family Education Loan (FFEL).Students who are still studying cannot avail this
Facility of consolidation. The rate of interest is fixed throughout the tenure of the loan
And so no chance of getting any interest rebates in between. Moreover, there is no cap
Or limit to the interest rates for direct consolidation. To sum up consolidation of different
Loans is a good option but before going into that one should always do a bit of
Homework to realize the monthly payments he has put going forward.
