What you Need to Ask about Private Alternative Student Loans
When federal loan limits fail to keep up with the high cost of education, any savvy student can only take so much common sense and grab that private alternative student loans that come their way. It may be the last option to take after all scholarships, grants, work-study programs, and federal loan options have been explored. Call it your ‘take it or leave it’ deal. Like life, you need to learn the art of compromise: To have private alternative student loans or to say goodbye to your dream of going to college? The choice is always yours.
What exactly are private alternative student loans? These are student loans given by private lenders, such as banks or credit unions. These loans may not be affordable as it may come with a higher interest rate. Because it is credit based, you need to have a good credit history or have someone who does. Some may not require you to have a cosigner, but having one will definitely increase your chances for that loan. Did we already mention higher interest rates? There’s more to this story than you’ve ever heard. These private alternative student loans don’t come with a fixed rate like your federal loans, so this means you can see it soar or fall, like the tides. Because lenders compute these interest rates on what LIBOR ( London Interbank Offered Rate ) and Prime rates currently have, you need to cross your fingers and pray that the percentage won’t get higher.
What Do You Need to Ask Your Lender When Making Private Alternative Student Loans?
Thanks to the new disclosure act made by the Federal Reserve Board, you will have better protection in knowing what exactly you are signing yourself into. These so-called amendments on Regulation Z, or better known as your Truth in Lending Act, you’ll be informed on the ins and outs of your loans even when it’s already approved and used. If you’re still applying for one, you need to ask your lender these questions:
1. How much can I really borrow?
2. How much is the interest rate?
3. What is the APR ( Annual Percentage Rate ) of the loan? How do you calculate it?
4. Are there any limits to how much I can borrow?
5. How will I repay the loan? What are the terms?
6. Do I have to get myself a cosigner?
7. Should I attend school full time to receive the loan?
8. ( For those with a good credit history ) What are the best rates offered for my credit rating?
9. ( For those with a cosigner) Will my cosigner’s good credit rating help lower the interest rates?
10. Do you have discounts or incentives for timely payments?
11. Will I be able to defer my loans while I’m in school? What are the terms?
12. If I will pay monthly, for how long will I do it?
13. What is the total amount of interest I will have to pay for the life of my loan?
14. Do you have a flexible payment term where I can pay more as I earn more?
Know that after you have filed your application for private alternative student loans, whether online or by phone, you will enter the pre-approval process. Get ready to be placed under the lender’s looking glass as a credit review is done. If you pass, your lender will make you complete a promissory note, plus other required forms. The process can take approximately 2-3 weeks, or faster, depending on your lender. Just keep in mind to borrow just enough for your needs and never fail to pay on time… or you’ll pay dearly. Choose Your Lender Wisely!
READINGS:
http://www.ndm.edu/FinancialAid/ApplyforLoans/2010-2011-alternativeloanprocess.cfm
http://www.studentfinancedomain.com/student_loans/private_student_loans.aspx
http://www.studentloanborrowerassistance.org/understand-loans/private-student-loans/
http://www.umuc.edu/financialaid/types/alternative.shtml
http://www.federalreserve.gov/newsevents/press/bcreg/20090730a.htm
