When you are looking to join a university for higher education, one of your main concerns will likely be the tuition fee.
Fortunately, you can take a student loan in case you are unable to pay for it from your own funds. However, you need to be very careful when selecting a lender and ensure that you get the best loan terms.
Below, we look at seven things you must keep in mind when taking a personal student loan.
#1 Credit Situation
Many people decide to pursue higher education only after they have worked for a couple of years. As such, they will already have built up a pretty long credit history.
And if you are one such person, then you need to realize that your credit score will have a huge effect on the interest rate when you apply for a loan. With a good credit score, you can easily get personal student loans at lower interest rates.
However, if your credit score is too low, you will be required to pay a higher interest. It is necessary to ensure that you have an excellent credit score when you apply for the student loan. If your credit score is weak, you need to look into why it is so and resolve the issues immediately so that the score becomes normal.
#2 Compare Multiple Providers
Always check multiple loan providers before you take a student loan. You don’t have to choose a company just because it offers loans at cheaper rates.
Look around and maybe you can get better deals. Different lenders will use slightly different calculations when it comes to determining your eligibility and interest rates.
You will only increase your chances for favorable loan terms when you put in some time to look at the offers from various lenders. So you should do your homework, compare different lenders, and then choose one.
The interest rate is one of the key factors that help people determine the viability of taking a loan. But something that is more important than the interest rate is the Annual Percentage Rate (APR).
An APR will include all types of fees you will incur together with the interest rate, thereby providing a clear picture of what your real loan cost will be. This will allow you to budget your loan repayments more accurately.
#4 Grace period
Another important thing to look for is the grace period of a loan. The grace period essentially refers to the time period after graduating from college when you are not required to repay the loan.
Once this time period is up, you will be expected to start making repayments. So, a student loan with a 6-month grace period will allow you the luxury of not repaying the loan for the first six months after graduation.
Usually, a 6-month grace period is more than sufficient for student loans.
#5 Variable Rates
When taking the loan, you will have the option to choose from two types of interest rates – fixed or variable rates. A fixed interest rate loan will charge you the same rate of interest throughout the loan period.
So, for a student loan with a fixed rate of 4% for a term of 6 years, you will have to pay a 4% annual interest during the full 6 years of the repayment period.
In contrast, a variable interest rate will only charge you interest depending on the economic conditions. Since student loans tend to be for the short-term, it is recommended that you opt for variable interest rates since you are more likely to benefit from it.
#6 Shorter Terms
As far as possible, choose a student loan with a short repayment term. If you opt for a long-term loan, you will be stuck with repaying it for several years.
And as you become older, you will get married and have kids, which can stress your monthly budget. In contrast, ensuring that the student loan is for a short term will help you pay it off faster, thereby avoiding unnecessary financial stress when you do decide to settle down.
It is also a good idea to prepay the loan whenever you can. If you come across some extra money, use it to pay for the student loan.
This will help you finish up your loan obligation faster. In addition, you can also get the interest rate lowered by prepaying the loan. Just remember to tell the lender to apply the prepaid amount to the loan balance rather than a future monthly payment.
Are you applying for a student loan?