How to Select a Lender for Your Student Loan
Selecting a lender for your student loan is probably one of the most important decisions you will ever make. With so many loan organizations and banks to choose from, it is crucial that the borrower spend time conducting research. This includes asking the right questions and making comparisons between lenders to find the most ideal terms. Most colleges offer a preffered lender list. Although this may be useful to some, it will be limited to what the school recommends and it's always a good idea to search on your own.
So you can make an educated decision about the lender you select for your student loan, here are some guidelines to follow.
What Fees Will You Have to Pay?
Sometimes, lenders will charge what is called an origination fee, which is a fee charged when you first borrow money. This money is typically taken out of the loan itself. So, let’s say you borrow $2,000. The origination fee would be taken out of this amount so you’d only actually receive $1,940 if the fee is 3%. However, not all lenders charge the origination fee or will waive it if you have exceptionally good credit.
What’s the Interest Rate?
The interest rate is very important. After all, this rate affects how much you will end up paying out of your pocket on the loan. The lower the interest rate, the better. However, be sure to read all of the fine print on every loan application very carefully. Even though it might seem like a good deal, make sure the interest rate is fixed and not variable. Likewise, make sure that you can refinance the loan if you want to. A lot of the time, students will take out more than one loan in order to cover their academic costs. However, it can be quite a burden having to pay back all of these loans at once. That’s when students opt to refinance. This means all of their loans are combined into one under a new, lower interest rate. This option can be a lifesaver later down the line, so make sure you have it.
What Incentives Are There?
Any good lender will offer incentives on your loan. Incentives usually come in the form of a reduced interest rate. So, for everything you do right, you get rewarded for it. Common incentives include an interest rate reduction after so many months of on-time payments and an interest rate reduction for opting to have your monthly payment taken directly out of your checking account. Now, these incentives are usually very small, but any reduction in your interest rate can make a sizable impact on how much you pay on your loan in the long run. Remember: any break is a good break!
Can I Cosign?
Most college students do not have an established line of credit. I mean, this is to be expected, being that most college students are fresh out of high school. Even so, lenders typically want to see some sort of credit history. They don’t want to just throw their money out there! This does not include federal loan programs, however, which do not require a credit check to qualify.
Because of this need for credit, you should have the ability to get someone to cosign with you on the loan such as a parent or guardian. A cosigner should have better credit than you do, which can help to lower your interest rate and make your future payments more manageable.
Along with the ability to have someone cosign with you, also look for the ability to release someone from the cosign contract. This way, after you’ve established yourself as a responsible borrower, the cosigner can be released from the contract. This is important for your credit, so it’s important to look for when selecting a lender.