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Private Student Loans

Updated on August 15, 2008

Private Student Loans

The first point of call for any college student looking for a loan should be the federal student loans programs which provide loans without any requirement for a credit check and with repayment deferred until after graduation. However, the federal student loans programs are based upon a student's need and carry a number of criteria which can sometimes make it difficult to qualify. And, even if you do qualify, federal loans will not always be sufficient to meet your needs and leave you with a shortfall. At this point therefore it is often a case of turning to the private sector for the loan funding you need.

The biggest drawback for many students as far as private loans are concerned is that they invariably require a credit check and will only be granted if you have a good credit history. The term 'good' however is not always easy to define and sometimes you will find that your credit rating is good enough to get you a loan but not quite good enough to get you the best rate of interest.

However, even if you do manage to get a loan at a reasonable rate of interest you will find that there are other things which you need to take into account. For example, administration fees will often be added to the loan before it is disbursed and these can typically be in the region of 4%. In other words, if you borrow $5,000 then $200 will be added to your loan in fees and this is money which you will not actually receive but will be required to repay. Fees are an important part of your loan consideration because, in very rough terms, every 3% you pay in fees is equivalent to adding 1% to your loan interest rate.

This said, there are also a number of advantages to taking out private loans, not the least of which is their availability. Private lenders are in business to make money and the more money they lend the more money they make. So, whereas federal lenders operate to a strict set of guidelines which you either meet or do not meet, private lenders will work hard to see that you get your loan if it is at all possible.

You will also find that dealing with a private company is generally a lot easier than dealing with federal bureaucracy. It is often true that private lender's customer service departments are understaffed and you can find yourself 'on hold' in a queue fairly often, but it is still generally far simpler to sort out problems with a private lender.

Depending on how much you need to borrow and how good your present credit rating is, it is possible to get private loans which carry no fees and have an interest rate that is on a par with the prime lending rate. Now you will have to have a very good track record to do this, but it is possible. Even if you cannot manage this however, competition in the marketplace means that by shopping around you will often be able to find some pretty good deals.

One trick you may be able to employ if your credit rating is not too great is to bring a cosigner into the equation. A cosigner is simply somebody (possibly a parent) with a good credit rating who is willing to cosign your loan application and to guarantee the repayment of the loan. Depending on your own standing with the lender, you may find that a cosigner can get you a loan with reduced fees and a substantially reduced interest rate.

Many students today shy away from private loans or view them very much as a last resort but, if you shop around and find a few lenders who are prepared to offer you one of their low interest student loans, it could prove very helpful in getting you


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