Private Student Loans Application - Benefits and Disadvantages
One must consider carefully the different programs available when deciding on loans. Most Federal student loan schemes offer ample aid without background checks. The most popular is the unsubsidized loan that accumulates interest while the student is pursuing his studies, however, it is based on needs of the student and has relatively stringent criteria. At times, even when the student is on such loans, unsubsidized loans only provide for part of the total expenditure needed. Another alternative would thus be the private loan.
However, Private loans have their own set of advantages and disadvantages. Private loans are highly based on the credit score of the applicant. In case of student's loan they would consider the parent's credit history. Hence for those with bad credit, they may end up paying high rates of interest towards that loan. Not only do they have high interest premiums, they have additional charges as well. For instance, for a loan amount of $4000, about 4% would be charged towards fees before the loan is disbursed. The fees is normally deducted from the loan amount, which in simple term means, the borrower pays for $160 that he would not see. A general thumb rule is every 3% of extra fees equals up to about 1% more of the interest rate.
The major advantage of private loans is that they are easily available. Since they exist with an objective to make profit through fees and interests, they make the loans available to most of the applicants. On every loan application, they try their level best to get the loan approved. On the contrary, the Federal lenders have strict regulations to approve a loan and once rejected there is usually no stand to expect a federal loan further. The private loans in order to provide maximum customer support employ skilled service professionals to solve the issues of the customers promptly and professionally. Whereas Federal loans usually have limited staffs where quality do not usually meet the service provided by private lenders.
In addition to availability and better customer service, Private loans are preferred for few other practical considerations. Unlike the Federal student loans, the applicant need not provide supplemental documentation or fill up the FAFSA (Free Application for Student Aid) forms. However the fees and interest rates may vary and depend on the program features. Out of all the private loan programs available, the most desirable would be the one with no fees and that has interest rate equaling to 1% prime rate. The fees that banks charge one another for their prime customers is known as 'Prime rate'. It is a good time when the interest rate is below that of the prime rate or at the same amount. As mentioned earlier, it is also important to check for additional fees since that can substantially increase the cost of the loan.
To avail a private loan with such features depends on good credit score of the applicant or the co signer. You may check further information by digging into the specifics of each of the private lenders available in the market. Alternatively, you can shop online to see the different schemes catered to applicants and you can even see specific loan schemes at sites such as (www.finaid.org/loans/privatestudentloans.phtml). You can also get loan calculators online at (www.bankrate.com/brm/rate/calc_home.asp) that would help you check some sample scenarios. It is essential to consider the payment in light of the initial fees paid and the interest that is paid throughout the entire term of the loan to get the full outlay of the loan when deciding on the feasibility.
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Moses Wright is the owner of BulletPedia. He likes to help people with their financial debt consolidation problems whenever he is free: http://www.bulletpedia.com/debt_consolidation.htm
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