Is consolidating your loans with manulife worth it ?

Question

Is consolidating your loans with manulife worth it ?

Answer 1

That depends on your circumstances, and the lending terms that they are offering you.

Manulife is not exactly a fly-by-night operation - as I'm sure you know, Manulife Financial is one of THE major Canadian insurance companies, so you're dealing with a large and legitimate firm.

But that doesn't mean that their consolidation program is right for you...

The whole point of consolidating debt is to substitute one single creditor for many creditors - but that only makes financial sense if you're going to wind up in a better financial position because of this change. If you owe Lender A one dollar at 10% interest, and Lender B two dollars at 8% interest, and Lender C three dollars at 6% interest, then it hardly makes much sense to consolidate your loans and pay Lender D 20% on your $6 balance. (Unless you think that writing just one check every month is worth a whole lot in convenience).

If you want to answer this question properly, you'll need to take each of your existing loans, and figure out what it's going to cost you to pay off each loan over the current period, interest rate and monthly payment. For example, if you owe Student Bank of Canada $8100 at 6.5% interest for 15 years - what is the total that you'll pay by the time you have paid off the loan. Add up all of your existing loans, then do the single analysis of the loan that Manulife is offering you. (e.g If you were to owe Manulife a total of $28,500, payable at 7% interest over 15 years....)

Once you've done your computations, compare the total you would pay Manulife with the total that you'll otherwise pay all of your current lenders - if there's a significant savings, consolidation would be the way to go.

There are some other considerations that you might have to take into account. For example, if Manulife is offering you a longer repayment term, chances are that your monthly payment on the consolidation loan will be less than the sum of your existing payments. If you're struggling to make the current payments, a longer term might be to your advantage - even though you'll wind up paying (considerably?) more in the end.

Similarly, if your current loans are based on a variable interest rate, you're in the somewhat risky position of future rate increases. If the consolidation loan offers a fixed rate (or a more attractive variable rate), you may  see a long-range benefit of locking in a fixed rate. In other words, though your monthly payments might be higher now, over the length of the loan, you might wind up paying less if you switch to a fixed rate loan.

I don't mean to be non-commital, but the point is that there is no way to answer the generic question "Is consoldating your loan with _____ worth it?" It depends on your financial circumstances, the terms of your current loans, and the terms of the new consolidation loan that would replace them. I'd recommend that you consult with a financiallly-savvy advisor - someone who can help you analyze the "costs" of the existing and the potential new loan.

Good luck to you!