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4 Important Questions About Private Student Loans for College Students
When applying for financial aid for college, you may be offered information about private student loans. These sometimes differ from federal student loans, so it is important to be aware of the terms and conditions that generally apply to this type of financial aid. Here are four questions to ask a private loan provider before submitting a loan application.
What Size Loan Do I Qualify For?
You should first complete and submit a Free Application for Federal Student Aid (FAFSA) several months before enrolling in college. Your eligibility for various types of student financial aid will be explained, including loan options. A federal or government loan differs from a private loan, so be sure you understand the differences before applying for a private student loan. There are various types of student loans, so discuss the available options with a representative of the bank or other financial institution to which you are applying for the loan. Typically, the loan amount will be based on your credit history, your credit score, and your income. Other factors may apply. The loan amount may or may not be sufficient to cover all your college expenses. If it is inadequate, you may be able to apply for other financial aid later.
Is the Interest Rate Fixed or Variable?
Interest rates for which you qualify on a student loan with a private lender will likely be determined at least in part by your credit score and current earnings along with prevailing economic trends. The interest rate could be fixed, remaining the same over the life of the loan, or it could be a variable rate, which means it could climb or fall while you are making monthly payments on the loan balance. A variable interest rate could cause your monthly payment to rise sharply to affect the amount of your payments or the length of time that you have to repay the loan.
How Long Do I Have to Repay the Loan?
Loan terms vary due to several circumstances, including income and credit history. You may be required to repay the loan in full within a certain time period, like five years or fifteen years, and payments will begin as soon as you receive the loan funds while you are in college. If you are unable to pay off the loan in full by the designated date, you might be able to ask the lender to rewrite the loan and extend the repayment period. The interest rate might change, however.
What Fees or Penalties Might Apply?
Some private lenders charge an application fee or an origination fee. An annual loan maintenance fee could also apply, although this may be waived in some cases. Late fees could kick in if your monthly loan payment is late or missed. Some loans have a prepayment penalty, which means that if you want to pay off the loan in full early, you might have to pay a fee. Discuss these and other fees that may apply with the lender, and they should be explained in the loan contract before you sign it.
Taking out a private loan for college can help you to earn a degree. However, make sure you understand the type of loan you are getting and the requirements for repayment before confirming the loan agreement.
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