After exhausting scholarships and federal student loans, many students turn to private student loans to help pay for college. Like choosing a school, there are many lenders and picking the right student loan for you requires some research.
There is a lot to know about student loan options out there–from different lenders to repayment plan types. It’s vital to shop around and look closely at the details to see how they’ll affect you and your future finances.
How to Pick the Best Type of Student Loan For You
With so many options, how do you pick the best type of student loan? Much of it depends on personal preference as well as your financial situation. For example, if you prefer steadiness and predictability when it comes to finances, you should probably opt for a fixed interest rate. Is money tight right now? A deferred repayment plan might be best.
Keep in mind, that options differ from lender to lender, and not all may have the repayment plan or terms you want.
Once you know what kind of loan you’re looking for, it’s much easier to browse offerings from different lenders. Then it comes down to interest rates, plan flexibility, and eligibility requirements.
Understanding Student Loan Terminology
Let’s break down some student loan terms and phrases you’re likely to see.
- APR : Annual Percentage Rate. The annual cost of having the loan, includes the interest rate, charges, and fees.
- Principal: The amount of money initially borrowed.
- Interest Rate: The percentage of principal charged for borrowing the money. (Lower is better).
- Variable Rate: An interest rate that changes based on market performance. Can go up or down.
- Fixed Rate: An interest rate that does not change throughout the life of the loan.
- Cosigner: A credit-worthy individual that helps a borrower with little or no credit history secure a loan. If the borrower can’t repay, the cosigner must take over the loan.
- Immediate Repayment Plan: Start repaying the loan right away.
- Graduated Repayment Plan: Begin with lower monthly repayments, then steadily increase the amount until the loan is repaid.
- Interest-Only Repayment Plan: Repay only the accruing interest while in school, then start repaying in full after graduation.
- Income-Based Repayment Plans: Monthly payments are calculated as a percentage of your monthly income. Lower earnings, smaller monthly payments. Higher earnings, bigger monthly payments.
Making an Informed Student Loan Decision
When it comes to private student loans, it really does pay to explore each and every single option available. You don’t want to miss out on a plan that would better fit your financial situation, after all.
So do your research and shop around! All of the effort will be well worth it in the long run.
