There are a lot of variables to consider when deciding upon a lender for your private student loans, but the most obviously important is the interest rate. A high rate will mean more of your monthly payment goes toward interest each month, and less toward your principal balance. Ultimately, this means you pay more over the life of your loan plus you’ll be stuck with a higher monthly payment. To avoid paying more in interest than you need to, follow this advice to get the best interest rate on a private student loan.
If you are looking for a lender to take out a loan with, shopping around for the best interest rate is a necessity. Although many lenders will offer similar rates based upon your credit score, credit history, and income, sometimes the best available rates will come from a financial institution that is familiar with you (such as your local bank or credit union) or from nontraditional sources, such as peer-to-peer lending platforms. Though the difference between interest rates might look small, they can amount to a significant difference in monthly payments and in total interest paid over time.
If a refinance of an existing student loan is what you are after, shopping around will ensure you get the best new rate available. Don’t refinance with the first one or two lenders you check with, even if their rates are lower than what you’ve currently got. Check at least half a dozen or more to see how their rates and terms are different before committing to one. Keep in mind that it isn’t enough to simply check their “lowest rates” as advertised, since that isn’t necessarily the rate you’ll be offered. In order to be sure of the rates, you’ll have to individually apply with each lender and receive an interest rate offer personalized to you.
Choose a Shorter Repayment Term
Most private student loan lenders offer loan repayment terms of varying length. Inevitably, longer loan repayment terms come with higher interest rates. At first, this might seem backwards. After all, wouldn’t a longer repayment term mean more money for the lender, and so they could afford to offer borrowers a better rate? Actually, the reason that longer repayment terms typically come with higher rates is because the longer a lender’s money is tied up in one borrower the harder it is for the lender to know that it will turn out to be a better investment than other opportunities that will come up in the financial market. To better protect themselves against the long-term ups and downs of the market, they charge a slightly higher rate. So, to protect yourself against higher rates, choose a shorter repayment term.
Find a Cosigner
The best help most people can get in an available interest rate is to secure a cosigner who has stellar credit. Private student loan lenders are notoriously picky when it comes to creditworthiness, and many college-aged borrowers just don’t have a sufficient credit history. When they can manage to qualify for a private loan on their own, the interest rate will inevitably be high. However, well-qualified borrowers, or those with well-qualified cosigners, can find private student loans with much lower fixed interest rates.
Sign Up for Auto Pay
One last suggested way to save each month is to sign up to have your monthly payment automatically debited from your checking account. Many private lenders offer a slight rate discount when borrowers agree to sign up for auto pay, typically about a quarter of a percentage point. In addition to the better rate that comes with auto pay, you’ll have peace of mind that you won’t forget to make your payment and end up with late fees. Just make sure to plan your other bills appropriately so that overdraft charges don’t negate the interest you’ll be saving.