Key Questions To Ask Before Taking Out A Private Student Loan
The college education is an expensive affair and there’s no denying this fact. The thought of sending a child to college can leave many families looking for various financial aid options, such as federal student loans and institutional grants. But often the money received from such options fall short for covering the college expenses. When this happens, an effective way to overcome the problem is to opt for a private student loan. However, not all private student loans are created equal. That is why you need to be careful before borrowing such a loan. Here are a few key questions to ask before taking out a private student loan:
What type of loan are you eligible for?
When it comes to private loans for school, lenders may offer various types of loans based on the degree you are about to pursue or currently pursuing. The type of loan can impact the amount of money you can possibly borrow, terms of repayment, and even the interest rate. Among the common types of loans offered are the following:
- Loans for technical training or community college: You can find lenders who are ready to offer loans for career-training courses, non-traditional schools, and even two-year degree programs.
- Loans for undergraduate school: You can opt for this loan if you are pursuing a bachelor’s program. The loan limit is higher and the interest rate is lower for undergraduate loans than that for community college or technical training loans.
- Loans for graduate or professional school: If you are pursuing a doctorate or a master’s degree, you can be eligible for such loans. The loan limit, in this case, is more than that for an undergraduate loan.
- Parent loans: In this type of loan, the parents of a student can take out the loan. The family agrees that the student will start making the loan payments after completing the course. But legally, the parent is responsible for repaying the loan.
Does credit rating have any impact on the loan?
Of course, it does. The credit rating of the borrower helps to determine the interest rate of the loan. If you are a student, it is likely that you may have no credit history. But if you can have a co-signer for your loan, the credit rating of the co-signer can be useful for bringing down the interest rate of your debt. In case you are thinking of a co-signer, make sure that he or she has a good credit rating.
What happens to the co-signer if you default on your loan payment?
The co-signer is equally responsible for paying the loan. If you default on your loan payment, it becomes the responsibility of the co-signer to repay the debt. In other words, your lender will contact your co-signer and ask to clear the payments due on the loan. Also, if you make late payments on your loan, it will reflect on the credit score of the co-signer. This will hamper the chances of your co-signer in getting another loan in future. That is why if you are asking someone to become a co-signer for your student loan, make sure that you understand the implications of this step and try to not default on your loan payments.
What type of interest rate will you have to pay?
There are two types of interest rates: fixed and variable. If you have to pay a fixed rate for your loan, it means that the interest will remain same for the entire loan term. This rate is set right at the beginning of the loan. In case you have to pay a variable rate for your loan, it means that the rate of interest will vary based on the market rates and other factors. If your lender offers you the choice of interest rate type, make your decision after considering all the pros and cons of both types.
What are the repayment options?
The interest on a private student loan keeps on accumulating even when you are in college. Usually, lenders allow students to defer the payments of principal and interest amounts until they graduate from school. Some lenders even include a grace period in their loan agreements to enable students to get a job before they can start repaying. However, not every lender may offer this option. Understand the repayment options for your loan. Try to pay off some amount of the interest on your loan every month while you are still in college. This will help to reduce the overall cost of the loan.