Wednesday, October 31, 2012

Federal Loan Consolidation: Key Qualifying Aspects to Consider


It is common practice to see federal governments invest in the future of its population. An effective way to do so is through providing loans, either to encourage or sustain growth in industries and in education, but there is a drawback. These loans create debt, and sometimes those who benefit from the loans can struggle to repay them. The solution to the problem? Federal loan consolidation plans.

Consolidation can rescue a borrower from bankruptcy court. There are many reasons why a borrower might find it too difficult to repay the loans they have taken out, ranging from the financial impact of a weakening economy to the destructive impact of an act of God. Normally, securing loan approval depends on proving the ability to repay, but in these cases, proving an inability to meet existing repayment terms is essential.

The key to a bright financial future is to properly manage the debt created by federal loans. Even though these typically come at a lower interest rates than those charged by private lenders, consolidation can make a real difference.

Difference Between Federal and Private Consolidation Programs

Normally, there are two types of loans to take out: namely private loans and public loans. The terms can differ greatly, with private lenders seeking to make a profit on their investment and, for the most part, public or federal lenders not. With federal loan consolidation, the distinction is similar.

The differences are manifest in interest rates, with the federal option clearly less expensive due to the low interest rates that are charged, compared to those charged by private lenders. The result is that consolidation loans are much more affordable so, as long as an applicant qualifies, securing loan approval is no great problem.

The problem is that many business owners take out both federal loans and private loans, and mixing these loans in one consolidation plan is not always a good idea. This is especially true since the federal options have low interest and good terms anyway, so it is harder to improve on them than private loans.

Qualifying for Consolidation

Qualifying for a federal loan consolidation plan is pretty straightforward, with loan authorities requiring proof that the applicant is in financial difficulties. Help is granted only to those in debt to the federal government, and not to any other loan source. The chief sectors to benefit are agriculture and commerce.

The farming industry is known to be one of the most heavily supported in practically every country. And in the US, there is a wide range of loans available to aid the sector, including Farm Loans, Commodity Marketing Loans and Farm Storage Loans. These are issued through the FSA. Borrowers on these schemes qualify for a consolidation loan, but securing loan approval is reserved for those in the most serious situation.

Businesses operating in the commercial sector can also benefit from a long list of financing schemes designed to stimulate growth and employment. The range of federal loans includes Small Business Loans, Indian Loans for Native Americans, and Physical Disaster Loans for businesses that have suffered damage to property, infrastructure and facilities.

Criteria to Satisfy

Of course, meeting the stated criteria is essential if an applicant is to have any chance of securing federal loan consolidation. The good news is that this is not particularly difficult; all that is really needed is to prove financial difficulties. What is more, securing loan approval is dependent on the severity of the financial situation of the applicant, not their credit score, and on the ability to meet the restructured repayments.

The purpose of federal loans relate to aspects other than financial. For example, repairs may need to be made to a warehouse after a tornado hit town, or flooding damage may mean a business must close for several weeks. Federal governments are happy to provide support if it means people keep their jobs.

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