Gone are the days when only the rich kids and the people with scholarships could apply for the courses with higher admission fees. With the introduction of student loans, everyone can apply for their dream courses now. However, choosing the right loan option can be quite taxing for you and that’s why we created this private student loans guide.
In America, you have two choices for student loans. The federal loan option is funded by the federal government, while the other one, the private loan, is funded by the lenders like the banks, credit union, state agency or even a school.
Most people choose the federal loans since they offer some innate perks and protections, along with standardized interest rates. Also, you don’t need a co-signer on this one. However, the amount of loan is set by the Congress, which means it may not cover all your costs. Also, not everyone is eligible for the loan.
On the other end, private student loans allow you to apply for a loan that covers all your expenses, but you need a co-signer in this case. Also, the interest rates in this option are comparatively higher than federal loans.
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You may need to consider several things while choosing the loan option for you, and if you are clueless about where to start, the following list may help you get the drift.
Private Student Loans Guide
1) Your eligibility:
There are several criteria that determine whether you are eligible for a student loan or not. In case of a federal student loan, your eligibility for the loan is decided upon your financial need. If your parents make a good income, you may not receive the student loan from the federal government.
On the flipside, the private student loan options are flexible about the matter of financial needs. Anyone can apply for a private loan since it is not subsidized. However, there are several requirements that you need to comply with in order to approve the student loan. And since you need a co-signer for the private loan, the lender may fix some requirements for your co-signers as well.
It’s always better to go through the eligibility requirements for all the loan options you have considered (federal or private). A little bit of research can save you from an embarrassing blunder.
2) Interest rates:
The federal student loans come with a fixed interest rate, which is certainly lower than most of the private loan options. However, if you don’t qualify for the federal loans, you may need to consider the private student loan options only.
Interestingly, private student loans can have variable interest rates. In fact, some loan options come with interest rates as high as 18 percent. So, evidently, you need to learn about the interest rates of each and every option you are considering and then determine which one offer lower interest rates in the list.
Surprisingly, there are several private student loan options that offer lower interest rates than the federal loan. So, if you are lucky, you may get a better deal than a federal student loan, with all the benefits of a private loan.
3) The tenor of repayment:
Apart from the interest rates, there is another factor that determines how much you need to spend while repaying the loan. It’s the time left for repayment of the loan, which is often termed as “tenor”.
In case of a private student loan, you can have the option to choose the tenor for repayment. A shorter tenor means you will pay higher monthly installments and vice-versa. You need to find a tenor that complies with your resources.
The longer tenor may seem attractive as it demands lesser amount each month, but if you look at the bigger picture, you end up paying more (cumulatively) when you choose the longer tenor. So consider being very careful about this matter while choosing a loan option.
4) The grace period:
The grace period is the timeframe that you are provided with before making the first loan payment. Sadly, not all the student loan options come with such facility. There are some private loan options that require payments while you are still pursuing the course.
The federal student loans usually offer a significant amount of grace period for the repayment of the loan, but if you are opting for a private student loan, then you may need to consider this matter seriously.
5) Forbearance and deferment:
People often feel the need to take breaks in payments, and the chances are that you may also need the same. Forbearance and deferment can be really useful in those cases. Forbearance allows you to stop the loan payment process entirely or reduce the payment amount for a certain period. However, the interest is likely to build up.
A deferment allows you to stop paying the principal amount as well as the interest if there are enough reasons. However, both the options – forbearance and deferment are available in federal loan options. Private student loans usually don’t offer such options. Still, you can check if a private loan is available with such options.
6) The additional benefits:
If you are qualified for a federal loan, you may not need to investigate about all the additional perks you get alongside the loan amount, but in case of a private student loan, it is wiser to learn about all the benefits the loan brings to you.
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Since there are too many options for a private bank loan, most of the companies come up with lucrative deals to convince students in taking up their loan options. You can use that to your advantage and evaluate all the additional benefits you are getting from each of the options you have shortlisted.
7) The fees besides the interest:
The interest rates certainly play a crucial role in determining how much you need to pay in return. But, there are several other fees that you need to worry about while choosing a student loan option. A lot of private loans come with a high application and origination fees.
The federal loans may not have such fees, but you should check with the school if there are any hidden charges. In case of private loans, you may need to pay a fee in case you decide to pay extra or early one month. These fees may not seem like a significant amount in front of the principal amount, but it is better to know such things.
8) The likeliness of repaying the loan:
Before you apply for a loan amount, you need to ask yourself a question. “Will I be able to repay the amount after finishing the course?” Well, every year, thousands of students take loans from the federal government or a private money lender, but sadly, a lot of them fail to repay the money within the given tenor for various reasons.
If the course you are willing to pursue does not offer a high-paying job, or the chance of getting a job is really slim, then you should evaluate whether it is a good idea to take the loan or will it be better if you reconsider the whole decision. It may save you from a catastrophe.
These aforementioned tips may require a certain level of research work. However, the results are always satisfying. So do your research and compare all your loan options before making the final call.
When it comes to taking out a loan, it’s tough to know where to start. There are thousands of banks, credit unions, and other lenders across the country to choose from.
That’s where Credible comes in. Credible compares offers from a variety of lenders so you don’t have to. After you enter a few pieces of basic information on the Credible site, it will show you preliminary loan offers from multiple lenders.
If you find an offer you like from Credible, you can take out a private student loan or refinance your student loans. If not, you aren’t committed to any of the offers.