After exhausting your federal loans you may look for private lenders for more funds (usually medical students in this case), but exploring private student loans options is not an easy task.
Once students know how much money they are eligible for, they can calculate their total bill outstanding to determine what they need to apply for.
If you decide that a private student loan is the best option for your school funding needs, here are the most 6 characteristics that you should look for when comparing private lenders:
- 1. Loan’s Term (How long will it take you to repay the loan?)
- 2. Interest Rate (How much interest you’re going to pay?)
- 3. Prepayment penalties
- 4. School Payments
- 5. Repayment benefits
- 6. Cosigner release
- Frequently Asked Questions
1. Loan’s Term (How long will it take you to repay the loan?)
This is the total number of years the loan will be repaid over. Private student loans come with terms ranging from 10 to 25 years.
When it comes to loan terms, the longer the term, the cheaper the minimum monthly payment. However, the longer it takes to repay a loan, the more interest may accrue.
2. Interest Rate (How much interest you’re going to pay?)
Interest rates are the most well-known feature of private loans. Borrowers should aim for the lowest rate possible, as this is a measure of the repayment cost.
A credit check will determine the interest rate allocated to a loan application. The better the applicant’s credit, the lower the rate may be, and the lower the applicant’s credit, the higher the rate may be.
Private loan margins might range from 2.99% to 14% depending on the lender, so compare what is available.
A variable loan’s attractiveness is that borrowers with strong credit may be eligible for extremely cheap rates.
However, because interest rates on these loans may rise in the future, it would make sense for a borrower to pay off the loan as soon as possible to reduce the risk of future interest rate volatility.
A fixed-rate loan can offer more stability, but it may also come with a higher interest rate, raising the cost of interest throughout repayment.
3. Prepayment penalties
A prepayment penalty is a cost charged to a borrower if they pay off their loan before the stipulated repayment term.
Lenders charge this fee to borrowers to protect their earnings in the event that the borrower pays off the loan too quickly, resulting in a loss of future interest income.
This is an issue for determined borrowers who want to get out of debt quickly, as these costs may stifle their attempts to save money.
Prepayment penalties are not something that a borrower wants to be liable for, but lenders may impose them, so find out throughout the application process.
4. School Payments
While some private loans allow the borrower to defer all payments while in school, others may only require a monthly minimum payment.
Making payments on a private loan while in school can help you get out of debt faster.
By displaying solid paying habits over time, it also helps the borrower build a better credit profile. While attending school, you may be allowed to postpone all payments on a private loan.
The borrower will save time by not having to make current payments, but additional loan interest will accrue, making repayment more expensive.
5. Repayment benefits
Look for strategies to lower the cost of repaying a private loan by lowering the interest rate.
Some loans offer a rate decrease if you set up automatic payments, while others offer a rate reduction when a particular percentage of the loan has been paid off.
Check the requirements and make sure to take advantage of this perk to reduce your loan repayment costs.
6. Cosigner release
There may or may not be possibilities for the cosigner to be released if they cosign a private student loan.
Cosigners may wish to be released from the duty at a later point, making this a difficult situation for them.
Check to see if the lender offers a cosigner release option, and if so, how long it takes and what is required to qualify.
Frequently Asked Questions
Marie got her journalism degree from the University of California and is an award-winning financial journalist, who’s responsible for collecting and analyzing information concerning students and young adults within the world of finance.
Marie has spent her career with more than 5 years writing for unique media outlets like Yahoo finance, GoBankingRates, and CNBC. She also teaches them how to plan strategically to get out of loan debts easily.
Her goal is to educate students about the different stages in life that involve finances so they can get their money’s worth.