How to Shop for Private Student Loans?
Private loans are a source of college funding used to supplement (not replace) borrowing federal student loans. For many students, federal loans aren't enough to cover the cost of attendance. In this case, private student loans might be a good option.
With so many different loans, choosing a lender can be a daunting task. However, if you understand the basics of how to properly shop for private loans, finding the right student loan can be relatively painless. Here are some tips on how to select and apply for the right private student loan:
Compare Private Student Loans - While federal loans are regulated to have the same rates and fees, private student loans come in different shapes and sizes. So it's important to compare different private student loans across many different variables and features to find the right product for your needs. Lenders make different loan products to suit different financial needs, comparing your options is the only way to find the right loan.
APR is Important! - The Annual Percentage Rate ("APR") on a loan factors in all costs associated with the loan so that you can compare one loan to another on a true apples-to-apples basis. Interest rate alone isn't an adequate point for comparison. For example, a loan with a high interest rate may look worse than a loan with a lower interest rate, but high fees on the lower-rate loan mean that it might actually be more expensive. APR encompasses these factors and so would reflect this difference.
- Always compare total cost of loan. This factors repayment terms such as interest rates and timeline for repayment into consideration. Your need for $5k today, will cost you much more if paid back over the course of 10 or 15 years. APR expresses a similar point of comparison, but it's useful and sobering to see how much a loan might cost you over time. Note – loans with shorter repayment terms will usually cost less than those with longer repayment terms.
Some lenders may require interest only payments while in college which considerably lowers the total cost of the loan. Paying an extra few dollars each month while you're in school, will save you a large amount of money when compared with a longer repayment term loan once interest is compounded.
Apply with a creditworthy cosigner. In the current economic climate a cosigner will almost always be required for an application to get approved. And not just anyone will do – the cosigner must have strong credit (credit score of 700 or higher) and verifiable income.
- Borrow only what you need. Since you'll be paying back this loan with interest, you'll only want to borrow what you absolutely will need to get through the semester or year.