Keeping Your Wits About You When it Comes to Private Student Loans Part 2
written by Credit-HQ ExpertAsking the Right Questions
• Are you qualified for a private student loan? The web site or paperwork for the loan application process should include some details about any credit checks or minimum requirements of income, debt levels or other assets that you will need before you make application for the loan. Keep in mind that even if you get the loan, if your credit score is low, your interest rate may be quite high.
• How will the lender calculate the interest rate on the loan? Private student loans are almost always variable rate loans based on the current market interest rates. So you usually will pay a certain percentage over prime. An example is your loan interest might be 5% over prime. If prime is 5%, then your interest rate is 10%. Then your interest rate would only change when the fed changes the prime rate, which is not that often. However, your credit report and score may determine whether you will pay 1% over prime or 10%. And that will have a big impact on the affordability of the loan.
• Is there an up-front fee? This is a fee that you pay to help the lender with the costs of setting up the loan. It is also called an origination fee. Be sure you know how much that fee is before you authorize the loan so you don’t have a big surprise.
• Can the payments be deferred until graduation? Most students are not prepared to make loan payments. If they could generate revenue, they would not need the loan. Find out if the private loan you are looking at requires that payments begin right away. That one thing could make private students loans not a valid option for you.
• Is there a late fee if I miss a payment? If so, what is it? And will paying late on the loan cause your interest rate to change or affect the loan relationship in any other way?
• If I am paying on the loan and I lose my job or get sick, is there a deferral program? With federal students loans, deferrals or forbearance can be worked out. With a private loan, you will have to make sure that is part of the loan agreement. Sometimes you can add deference insurance but it might be at an additional cost.
• Will my school work with the private student loan program? Discuss it with your financial counselor so you don’t find out too late that the private loan hurt your ability to get other forms of student assistance.
By keeping your wits about you when you are researching private student loans, you ask the right questions and you can get out of a bad loan situation or negotiate for the terms you want. There are always other lenders so use your flexibility to get the kind of loan that will do the best job of financing your education or the education of your loved one.
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