Introduction
More and more parents and students are thinking of taking private loans students to settle tuition fees. The fact is, federal funded education loans are no longer sufficient to take care of educational expenses. However, one should also be cautious while applying for a private student loan, to avoid paying excessive amounts in interest charges. Here are some tips to look out for while shopping for a student loan.
Step 1
Make Use of Federal Funds
A federal loan is advantageous as compared to a private loans student, because of its fixed rate of interest and the ability to postponed payments while the student is in school or during times of economic upheaval when you may not be able to make the monthly payments. Federal loans also take into account the borrower’s income, in computing the monthly repayments for a loan. This assures the borrower that his loan payment will never exceed a certain amount. However, due to the huge number of students applying for federal loans, they chances of financing a college education totally by it are very slim. Therefore, account for this form of funding as a portion of the college tuition.
Step 2
Get to Know the Interest Formula Used
The rate of interest on your private loans student will be determined by either the prime rate or the London interbank offered rate (Libor). No-fee loans are the best, their rate is based on the Libor plus 2% or prime minus 0.5%, which is similar to what the federal PLUS loan program offers. Libor loans will usually be lower in the long term. It’s also important to note that some college loans have variable rates that increase during the repayment period. The rate will also vary if the student applies for the loan independently or with a co-signer. If you don’t have a good credit history, getting a qualified co-borrower will help lower their interest rates.
Tips
Add Up them together
Federal loans come with a set limit, but private student loans don’t. This means that you need to be very realistic when it comes to borrowing from these institutions. Calculate how much you are going to earn once you complete your degree or credential so as to know how much the repayment amount is going to be. Online calculators will give you a good idea of the total repayment. A longer repayment period will increase your total interest payment, but will the annual percentage rate of the loan.
Sources and Citations
Be a Good Borrower
Some lenders will provide certain fringe benefits to private loans students based on certain “good behaviours” such as reducing the student loan balance or your interest rate when you graduate. Banks will lower their interest rate on loans, for borrowers who have their principal and interest repayment deducted from their bank accounts by a small percentage of about 0.25%. This will not affect the monthly instalments, but will help with the total amount that you have to pay which is affected by the accrued interest. Another example of a good behaviour reward is releasing the co-signer from their obligations once the borrower has made consecutive on-time, monthly payments.
