Private student loans are a necessity for many college students, and are a great resource to help students fill gaps in financial aid. Without private student loans, going to college would be out of reach for many. If you’re considering taking out a private student loan, keep these student loan tips in mind to make sure you’re borrowing smart.
Not all student loans are equal
Every student loan (whether it’s federal or private) comes with different interest rates and terms. This might seem obvious, but it’s important to carefully review each factor of the loans you’re considering so you can make a smart choice on what to borrow. Before you select a private student loan, make sure you’ve reviewed and compared things such as:
- Loan term
- Full loan amount
- Interest rate
- Any loan or origination fees
- Repayment term
They are credit-based
While federal student loans are typically based on financial need, private student loans are based on credit. This means that your credit history and credit score will be taken into account when you apply for the loan. If you have a short or adverse credit history, you may need a cosigner with strong credit to help you qualify for the loan.
Understand the interest rate
Many private student loans come with variable interest rates, which means that the interest rate can fluctuate over the life of the loan. With a variable rate, the interest rate you get when you take out the loan may increase or decrease at different points. Be aware of what this means, and how this may impact your payment before you borrow.
Read the loan terms
We’re all used to skipping over the terms and conditions and going straight for “accept,” but this isn’t one of those situations. Make sure you read over the loan terms carefully before signing the loan. If you’re not sure about something, don’t be afraid to ask. There’s a lot of important details that can hide in the terms, and reading over them can help compare loans to find the best one for you.
Make payments while you’re in school
We know it can be hard to put money toward your student loans when you’re still trying to get through college, but even setting aside $20 a month to pay down your loans can make a big difference! Even if you’re only paying the interest that’s accruing each month, a little goes a long way – especially when you graduate and enter repayment.
There are a few repayment options
When it comes to repaying private student loans, most lenders will give you options. Depending on your lender, you may be able to choose from a variety of repayment plans such as:
- Full deferral: completely defer payments until after graduation
- Fixed: make payments of a fixed amount while you’re in school
- Interest-only: pay only the interest on your loan while you’re in school
Sign up for auto-pay
Many lenders offer a discount of 0.25% on your interest rate when you enroll in auto-pay. Doing so is a great way to not only save a little money, but it also ensures you’ll never miss a payment!
Keep these private student loan tips in mind, and you’ll borrow smart for the upcoming school year!