STUDENT LOANS: PRIVATE LOANS

Majority of students consider federal loans as their first borrowing choice. But this loan may not be able to shoulder an entire tuition, not to mention miscellaneous fees, books, board and lodging, and food expenses, among others. This is where private loan comes in, which is designed to augment a student loan. However, such loans are often more difficult to obtain and pay off.

Private student loans are granted to an individual’s overall capacity to repay the loan. Most private loans have variable interest rates; therefore, monthly payments can differ throughout the repayment period. Having said that, it will be difficult to estimate the payment upon graduation, which can make budgeting harder.

As hard as it gets, this tutorial will help how to borrow money for your education through a private loan. It will also outline the application process and requirements, as well as repayment responsibilities.

Applying for Private Loans. When is the best time to apply for private loans? If you are confident enough to follow through your career and make enough to settle your student loans, then apply. After that, you also need to budget your payment at current interest rate and the maximum payment you can give based on the contract terms.

Qualifications for Private Loans. Like car loan, mortgage, credit card, or personal bank loan, if you have no solid credit history and high credit score, you need to have a cosigner possessing these qualifications. Private banks offer these loans, and you can find private creditors through the internet, bank’s loan office, or the university’s financial aid office.

Contract Terms of Private Loans. Unlike federal loans, the contract terms of a private loan vary from lender to lender. Before signing anything, study the contract and seek help from the university’s financial aid counselor to review the contract with you. A student borrower must check the following:

• Prevailing interest rate terms, the financial index to which the rates are linked, and additional margin to pay. One has to know the rate, why, and how it can be raised, as well as how high it could increase. The reason(s) for rate hike depends on usury laws for consumer spending. The extent of rate increase may be determined by checking the historic rates for LIBOR and PRIME seen on the Federal Reserve’s website; and
• Clauses for temporary financial difficulty, if any.

Private Loans and Financial Hardship. At the first hint of financial difficulty, call the lender and inquire about temporary reprieves from payments or request to make temporary small payments. Lenders also offer an option to extend and lower payments via a private loan consolidation. Lastly and most importantly, check if the contract has the provision about options for dealing with financial hardship.

Repaying Private Loans. If the private loan lender won’t help you in times of financial difficulty, reorganize your budget to make private loans a top priority, or look for other loan vehicles like credit cards with low balance transfer rates. For instance, if you have federal loans, seek deferment or forbearance.