The private student loans are also called alternative loans and offer educational funding options in cases where the federal loans or other traditional financing options fail to provide adequate funding to cover the entire costs of education. These are mostly unsecured loans where the approval is based on the ability to repay the borrowed cash.
These private loans are as big a financial commitment as any other loans; hence need a very careful consideration before applying for a private loan. These loans are a bit expensive as the interest rates are higher and many lenders also charge additional fees. One should look through and exhaust all other options for federal loans and grants options before looking at this avenue.
And in case a private loan seems indispensable, then the student must try to get a good cosigner with a good credit history to apply for the loan. This can help in securing better terms in the form of interest rates and loan repayment period. One must carefully look through the documents before signing the agreement to avoid falling into a financial trap later.
Comparing Private Loans
If you are planning to buy a private loan, then it is best to make a good comparison of their interest rates as well as the total cost of the loan. The total cost figure will be arrived at by adding all the figures (Principal Amount+ Total Interest charged+ Fees & other charges).
What Is The Interest Charged On Private Loans?
The interest rate on a private student loan may have either a fixed rate or a variable rate. As the name suggests the fixed rate loans are those where the interest rate remains constant and the monthly payments do not fluctuate while the outflow in a variable interest loan has the probability of increasing as well as reducing, depending on the market.
The interest rate is a combination of an Index and a margin on that. The private student rate generally follows the LIBOR or PLR indices. The margin is what will vary from lender to lender; hence this should be weighed carefully.
What types of Fees Can be Charged on a Private Loan?
Lenders often charge different types of fees when you take out a private loan. This could be in the form of disbursement fee, insurance fee, deferment fee, origination fee or repayment fees can be charged in case of a private loan.
These fees could either be deducted at source from loan amount at the time of disbursal or it may also be borrowed as an additional amount and interest will accrue on this too.
It is important to carefully review the fees and other miscellaneous charges on the private loan as they add to the overall cost of borrowing the money and increase the financial pressure for you