Many students apply for student loans to help them in paying their school fees and meet other costs of attendance. Private student loans are mainly provided by Banks. They are far more flexible than federal student loans. With the increase in higher education costs, more students are applying for private student loans. Private student loans come in handy if you have borrowed the maximum you can from federal loans. Before choosing a lender for your private student loan, here are the factors to consider.
Private student loans offer an array of interest rates. Most of the lenders allow you to choose between fixed and variable interest rates. The rates largely depend on your credit score and income if any. The stronger the credit score, the lower the interest rate. With fixed interest rates, the rate of the loan remains constant throughout. This is great because you can already predict your future repayment interest and have a plan. On the other hand, if interest rates drop significantly, you will not benefit from this. Flexible interest rates are good so long as they remain low. A sudden increase in the rates means that you will pay higher interest amounts. Comparing private student loan interest rates is tricky, therefore take your time and investigate some banks before you make your decision.
There are different repayment tenors you can choose for your private student loan. A shorter repayment tenor means that you will pay higher monthly installments. On the other, hand a longer repayment tenor means that you pay little monthly installments. You need to get a perfect balance between the short and long tenor. This is because, although the longer tenor might seem attractive because you pay small installments, you will end up paying more money cumulatively than in the shorter one. On the other hand, paying large sums of money in a short tenor might be stressful to you. The ideal medium is around ten years. If your income after graduation is good, you can choose a lesser repayment period. There is the option of clearing your loan by paying more every month. This is ideal if you get a better job or if you get additional income. It is good because it helps you clear the loan faster and it reflects positively on your credit score. However, some lenders do not offer this option. Ask about this before you make your loan application.
Most lenders have a limit on the number of private student loans they give. Have a look at the minimum and the maximum limits of a lender before you apply for the loan. This saves your time in case the amount you want doesn’t fit in the range offered by the lender. As you look at the limits, do not be tempted to apply more than you need just because the limit allows. Stick to the golden rule of applying for only what you need. Remember that this is a loan you will have to repay with interest in the future.