As you eagerly await your university start date, you may still be looking to pay for it. If there is a gap between what you can afford with savings, grants and scholarships and the total cost of attending university, you can find student loans to help cover the remaining school-certified expenses.
If you are considering private student loans, made by banks and private lenders, there are many factors to consider when comparing your options. Interest rates are one of the key factors that will affect your minimum monthly payment and overall loan costs. There are different types of interest rates and lenders also offer different interest rates. Here are four tips to help you compare interest rates and find the best student loan option for you.
Tip 1: Understand fixed interest rates and change interest rates
When you borrow a private student loan, you can choose between fixed interest rates or changing interest rates. Fixed-rate loans tend to be more stable because interest rates will remain unchanged throughout the term of the loan. You can plan and budget for the same monthly payment each month, which is very helpful.
Student loan interest rate changes tend to have lower starting interest rates than fixed-rate loans. However, because variable rates are tied to an index, such as the London Interbank Preferential Interest Rate (LIBOR), they may rise or fall over the duration of your loan. Every time your interest rate changes, be it quarterly, your monthly payment may also change, making your budget more difficult over time.
Tip 2: Consider the range of interest rates
Private lenders often advertise a range of rates, and you won’t know what interest you’ll get until you apply. When determining your interest rate, the lender evaluates a number of factors, such as credit scores, income, credit history, and debt-to-income ratios. The better your credit rating, the better your rate will be. Since lenders use different criteria when setting interest rates, you can get the lowest interest rate of one lender and another with another lender.
Tip 3: Read beautiful prints
Sometimes lenders include interest rate discounts or certain loan terms in their advertised interest rates. For example, some lenders offer borrowers a lower interest rate if they are already a customer (i.e. a discount for a close customer) or sign up for automatic debit payments. Keep in mind that if an automatic debit discount is charged to the advertised rate, it may not take effect until you start repayment, probably after you’re done.
The advertised rate may also result in you starting to repay the loan while in school, or you will agree to a shorter repayment period (which may increase your monthly payment). So even with perfect credit, you may not be eligible for the advertised rate if you also disagree with these other terms.
Read the fine print as you compare the rate of private student loans and see how many monthly payments can help you compare more clearly. If your plan includes an interest rate discount or one of the short-term options, make sure that you may be eligible for a discount and that your budget will allow for higher payments.
Tip 4: Add Cosigner to help reduce your rate
Many college students have not set a credit history strong enough to qualify for a student loan of their own. Adding a trusted credit unit can improve your loan approvals and you can get lower interest rates. Even if you qualify for a loan without a lender, adding a person can reduce your rate. Similar to how lenders review your information, lenders will analyze lenders’ credit scores, credit history, and other appropriate information to determine interest rates.
Make informed decisions
Many students borrow money to help fill the funding gap for their university. As part of your comparison of lenders, look closely, and evaluate interest rates. By understanding what can be counted in your advertised rate, you can compare your choices and make the decision that works best for you.