Tips to Compare Private Student Loan Lenders
If you are eligible for government-backed student finance, they will be much more affordable than private student loans. This is because you will have fixed interest rates throughout the term and flexible repayment options, including an income-driven repayment plan, but you have to meet the eligibility criteria.
Some students have no other option than funding education with private student loans. Choosing a private student loan lender can be quite challenging because the repayment term and interest rates may vary.
This is why it becomes crucial to do enough research, so you choose the best lender. There are various lenders offering student loans, but there are certain factors that you should consider while comparing private lenders.
Factors you should look at while comparing private student loan lenders
Before you clinch a deal, you should review interest rates and repayment plans. Compare the following factors:
- Interest rates
Interest rate is one of the paramount factors that you should consider while comparing the deals. When you visit the lenders’ sites, you can find different interest rates displayed there, but the actual interest rate you get after you put in the application.
This is because it depends on your credit score, the size of the debt, other debts, your income, and the like. It is understood that interest rates will likely be higher in case of a poor credit rating. However, you can get money at lower interest rates in case you arrange a guarantor or co-signer.
When you already have other outstanding debts, the lender may be sceptical about your repayments and will likely charge interest rates. Further, it is essential to note that interest rates are usually more than you find displayed on your website.
This is because these rates involve processing fees. Although all financial institutions advertise their products with no processing fees, interest rates are already included. You cannot decide by simply comparing interest rates.
There usually are two types of interest rates: fixed and variable. A fixed-rate student loan will let you pay down fixed monthly instalments throughout the loan term, while a variable-rate student loan has variable repayments.
- Repayment term
The repayment term is one of the crucial factors to decide whether you should finalise the deal or not. The repayment term generally varies between five and 20 years, depending on the amount you are borrowing.
The length of the repayment term can affect the size of monthly payments and the total amount you pay in interest. You can choose a loan with a more extended repayment because it makes your monthly payments lower.
They are much more manageable to pay. However, if you choose a longer repayment term, you will pay much more money in interest, which will be more than the money you would have paid in interest if you chose a loan with a smaller term.
This is why you should try to choose a smaller repayment term. Although the size of each instalment will be big, you will be able to save a lot of money in total interest. Ask your private lender if you have the freedom to choose the repayment term on your own.
Most lenders will provide you with a couple of options. You should look for your affordability, so you do not struggle to cover your regular expenses along with your student loan payments.
- Customer service
You will be tied with your lender for a couple of years, so it makes sense to check their credibility. Even if you have found out the lender is offering the loan at lower interest rates, you cannot immediately decide.
This is because you cannot just rely on seeing things – after all, the proof is in the pudding. You should look at customer reviews because they can exactly help you know whether their services are good or whether people are satisfied with their loan products.
It is not surprising to have online complaints against lenders who seem to be offering money at affordable interest rates. When it is about reading customer reviews, it does not mean that you should stay limited to them. Find out reviews on Google and social media platforms. These are the best platforms to know the reputation of your users.
- Grace period
In the case of government-backed student finance, you will have a grace period. You will start making payments when you start earning more than the threshold amount. However, this scenario is generally not available in the case of online lenders.
They will require you to start paying down the debt as soon as you get it sanctioned. Although private lenders are not bound to provide you with the grace period, some still offer this.
At the time of comparing lenders, you should ask about the grace period. If they do so, interest will keep accruing. This is why it is intrinsic to have your budget prepared for paying down the debt whether or not the lender offers the grace period.
Government-backed student loans can be deferred when you cannot make payments, but this option is generally not available with all private lenders. They may or may not have an opportunity to put off payments. If they have, they are not very flexible.
You will be allowed to put off your monthly payment twice or thrice, depending on the policy of the lender, and the interest will keep accruing until you pay it down. Although deferment is not an option to escape your student loan, you may need it when you cannot pay down the instalment due to a financial emergency.
Make sure that you ask lenders if they have this option. If so, it can work in your favour. However, it is suggested to have prepared a budget so you do not fall behind the repayment because it will accrue interest and add fees on postponed payments.
Deferment may be a less favourable option if you do not have a financial emergency and run out of money because of your overspending habits.
What if you do not have credit?
When you take out a student loan, you must have a credit history that your lender will consider to make a decision. However, when you do not have credit, your lender will sanction the loan based on the income and credit score of your parents.
Somehow your parents become a part of the debt you owe. In this situation, parents will be co-borrower.
However, it is crucial to note that they will not be entirely responsible for the debt you have taken on because they can have their name removed when you gain creditworthiness based on some on-time payments.
Sometimes, lenders hesitate to lend you money because of not-so-strong creditworthiness. In that situation, they will ask you for a co-signer.
All private student loan lenders allow for it so they can call upon them in case of a default, but this can damage the credit rating of the co-signer as well.
This is why you should look for a lender who can release the co-signer after making a couple of payments.
The bottom line
There are various factors that you should consider while comparing student loan private lenders. It will be a good idea to consider government-backed funding, but there are certain situations when taking out a student loan with a private lender seems to be a more favourable option. Consider the factors mentioned above to make a good comparison while choosing a lender.