How do you choose the best private student loans for undergraduate college students?
This is an important question to ask in your decision-making process because some options are better than others.
First, make sure that you’ve already explored other options like scholarships, federal student loans, grants, and work-study programs.
If you come to the conclusion that private student loans are the best option for you, it’s time to decide which types are the best.
In this article, you’ll find the most important factors to consider when choosing a private student loan.
Private Student Loan Factors to Consider
Most universities provide financial aid services, however, it may not always be sufficient to cover the cost of attendance.
This is why many students choose to subsidize scholarships with student loans. Others choose to entirely depend on student loans to pay for college expenses.
When choosing which private loan to use, consider these factors:
- Interest Rates
- Bank Lender
- Flexibility for Repayment
- Deferment Options
- Cosigner Release Options
- Repayment Terms
Don’t just stick to one bank lender before comparing their interest rates with other lenders. This is important because it can determine how manageable repaying the loan will be.
High interest rates can affect how much your balance grows, and how much you end up paying.
Unlike federal student loans, private lenders will base the interest rate on your credit score. This is a big deal because even if they advertise a low interest rate, yours may end up being higher because of your credit score.
Only people with excellent credit scores are likely to get low interest rates from private lenders. Keep this in mind so that you don’t get misled by the attractive rates they advertise!
Depending on your credit score, interest rates should range between 5% to more than 12%. Make sure that you compare different lenders to make sure that you are getting the best option possible.
Another important factor you should consider is the additional fees private lenders charge.
Private lenders could charge fees for:
- Defaulting on your student loan
- Paying off student loans early
- Late payments
- Returned payments
- Putting your loan into deferment
Remember that fees can add up if you are not aware of them beforehand. Some private lenders are more flexible than others, so keep that in mind during your research process.
Generally speaking, private student loans are not very flexible in comparison to federal student loans.
However, you still need to be sure of what the repayment terms are and find the one that is best suitable for you.
Types of repayments options
- Fixed monthly payments
- Interest-only payments
- Deferred payments
- Income-driven repayment plans
Make sure you know how much your monthly repayments are before agreeing to the private student loan terms.
The monthly amount should also be something you’re comfortable paying because defaulting will hurt your credit and affect your ability to secure new loans.
If you do your research well and are sure of all the terms and conditions, then you should be ready to get a private student loan.
Remember to take your time, and weigh your options before making a final decision.
Pearl M. Kasirye is a writer at La Dolce Studio, editor, and researcher who spends most of her time reading. When she isn’t reading or working, she can be found sitting on her balcony writing her own novels or traveling