Loan consolidation help (interest+principal?)?

Posted by admin on March 18, 2010 at 9:18 pm · Under answer

I’m in the process of consolidating my loans but I’m a bit confused as to how loans work. I went over this stuff in high school but heck if I remember.

Anyway – the estimated total payment (interest+principal) comes out to 1.6 times my loan! For instance, if I owed $10,000 it is estimating that my total payment (interest + principal) will equal $16,000. So am I going to end up paying almost twice my loan in interest??

I don’t understand how the stated interest rate can be 5% yet it sounds like it’s true cost is 60%. Can anyone explain this to me?
Thanks

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2 Comments

  1. Anthony said,

    March 18, 2010 @ 9:42 pm

    If you have federal student loans you can get a federal consolidation done. You want to contact all of your lenders and get your balances, account numbers and loan types. Then fill out the application for consolidation at http://www.loanconsolidation.ed.gov or call them at 1-800-557-7392.

    The interest is based on a weighted average of what you have for interest now. You can also apply for the IBR program (Income Based Repayment) which extends your repayment period but makes your payments easier to handle on a monthly basis.

  2. emp04 said,

    March 18, 2010 @ 10:01 pm

    Hi,

    Interest is compounded each year. So if you have $100 in loans at a 5% interest rate, you would pay $105 after year one, then $110.25 ($105 *1.05) the next year and so on. However, you can pay off your student loans early, if possible to save on interest. For more information on consolidating loans, see here: http://www.ehow.com/how_5396505_consolidate-federal-student-loans.html

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