Not that the word ‘good’ can be used to describe any sort of loan, but not all loans need to be bad. A real bad student loan would comprise of high interest rates that you pay, fewer repayment options or little to no help if you were falling behind on your repayments.
It is, therefore, prudent that you take your time to study and assess the fine print on your student loan agreement, so you can avoid the stress and hassle, which comes with a bad loan.
Before you evaluate any loan on offer, try to apply for any free money that you may be eligible for. This could comprise of grants, assistantships and scholarships. Your institute may not necessarily offer them to you, but other private organizations do help with student aid. Only when you have exhausted all options, should you think of a loan for your education. You can make use of these 3 borrowing tips to steer clear of a bad loan;
CONSIDER A FEDERAL LOAN FIRST
If you must borrow, you should choose a federal loan over a private one. We advise you to do so because the federal government offers more borrower friendly terms such as income-dependent repayment options, which don’t even need established credit. If you need more money over and above the federal loan, then you can compare the various kinds of loans on offer from private vendors. Some Universities even offer counseling to students who are seeking loans from trustworthy lenders.
Local banks also offer more benefits than their larger counterparts, particularly in terms of customer service. What would be easier for a student? Walking into the bank and speaking directly to a representative or calling some 1-800 number and pushing a plethora of buttons just to speak to a human being! When deciding on getting a loan, you should pick the best option for yourself in terms of repayment options, longer grace period, option to release a co-signer and the option of holding off repayment (temporarily).
CHECK YOUR FORBEARANCE TERMS
When you repay your loan, you might encounter difficulties meeting the monthly payments and one way you can avoid missed payments is by employing forbearance. It actually allows you to pause and delay payments on your loans for a specified amount of time, which is usually short, but the interest continues to accrue. It is typically offered in 3-month increments, not crossing 12 months, but some lenders do offer 24 months for forbearance too. When reading your loan documents, if you notice that there is no forbearance option, it may be the case that your bank or financial institutions grants them on a case-to-case-basis. In this case, you may clarify with your bank’s representative from the get go. Also, it’s safer to opt for a loan from banks, which have a transparent policy in place.
Lenders, particularly private ones, offer two kinds of interest rates when you borrow from them: fixed or variable. Trust us when we say go with the fixed rate option, which would stay the same until you repay your entire loan. A variable rate might be lower than the fixed rate, at initial glance, but they can increase over some time, as they are linked to the financial market index, as the index changes, so does the variable interest rate.
Apart from the interest rates, you should also be on the lookout for hidden costs, like for instance, fees. The perfect candidate for a ‘bad loan’ would be one which advertises a low interest rate, but more than makes up for their loss of profits with other fees. Another thing to be vary of are penalties such as a prepayment penalty and late repayment fees.
WHY A LOW INTEREST RATE SHOULD MATTER TO YOU, AND HOW DO YOU GET IT?
Finding the lowest fixed interest rate that you can be eligible for is very important for your sum total of savings, even a change in the smallest degree helps, say 1%. Over the course of your education, you might end up taking on several loans and that is why the lowest interest rate matters over time.
That being said, the lowest rates are usually offered to those borrowers who have a rock solid credit score, or alternatively, it is given to someone whose co-signer has a high credit score. Lenders also offer discounted interest rates for existing account holders, on time and auto-payments. Instead of playing the guessing game, ask your bank how you can get the best rate possible.
Getting a good education is a privilege that not everyone can enjoy, but getting a good interest rate on your student loan is in your hands, you only need to be proactive about getting the best offer.