We all love a low interest rate. Right now there are some incredibly low rates on private student loans. Some lenders are advertising rates 4% lower than the federal interest rates! It’s important to understand the different types and how to get that great low rate.
Know the Student Loan Interest Rate Range
When dealing with student loans from private lenders, often they will advertise a range on their interest rate; highlighting the lowest rate. The reason they show a range is because your interest rate is based on your credit. Unlike a federal loan where everyone gets the same rate regardless of credit; private lenders get to use your credit score and if your credit is good you might be lucky to get a lower rate than even your federal loans!
Know the Difference Between Variable & Fixed Rates
It’s important that you understand the different when a lender is talking about a variable versus a fixed interest rate.
- Variable means that your interest rate can change over the life of the loan. Often variable rates will be advertised lower than fixed rates but that means that the lender has the ability to change your rate.
- A fixed rate means just what it says. While a private lender may advertise these fixed rates slightly higher than their variable rates, some of the fixed rates are still better than the federal student loan rates! A fixed rate offers you peace of mind in knowing that your rate won’t change, but that can also be a negative. If you work hard over the years to get a better credit score, your rate will still be the same.
Shop Around
We’ve all heard the slogan “dare to compare.” Same is true when dealing with private student loans. Check out the different lenders websites and see what rates they are advertising. Find out the details of their loans. Many lenders offer different types of private student loans, each with their own benefits. Find out what perks they offer. Some lenders offer a rate reduction if you opt to make payments on your loan while you are in school. Some might offer a discount for setting up automatic withdraws for your monthly payment. All these little perks can add up to real savings on your interest rate.
Remember that every time your credit is run, it can cause a slight drop in your credit score so make sure that you do all your homework first before you start applying for any loans. If you just start applying for different loans from a bunch of different lenders, chances are good this will not help you get a good rate!
Find a Co-Signer
For most college students, you either have little to no credit history since you are just starting out in the world of lending. This means that you may need a co-signer to qualify for a loan. If you think that your credit might be good enough on your own to get the loan by yourself, you may want to consider still applying with a credit worthy co-signer. This can help you get an even lower rate than applying by yourself. Also, many lenders offer an option where; after a set number of consecutive payments, you can release your co-signer from the loan.
Lower Interest = Saving Money = Easier to Repay
The best thing about a lower interest rate means that you end up saving money during the life of the loan. If you are paying less interest every month on your loan, your payment is going to be more affordable than if you borrowed the same amount at a higher interest rate. It doesn’t take a master’s degree in economics to know that saving money is good and that it’s always easier to pay a loan when you can afford the month payment!