How to get the lowest interest rate on student loans

All federal loans issued each year have the same fixed interest rate, regardless of the borrower’s credit. Private student loans, on the other hand, have very varied interest rates.

Current interest rates on student loans

These ranges are wide because they take into account differences in borrowers’ credit profiles and loan terms, among other factors. Whether you are taking out a private loan for the first time or refinancing your existing university debt with a private lender, do all of the following to get the lowest rate on student loans:

If you don’t have good credit, or if you don’t have access to a co-signer who does, you will likely get the lowest student loan interest rate with a federal student loan.

But if you’re looking for private student loans or student loan refinancing, it’s worth even applying a few of these interest-saving tips. On $ 30,000 in student loan debt, for example, an interest rate of 5% would save you $ 30 per month and over $ 3,600 over 10 years compared to an interest rate of 7%.

Compare the prices

Different lenders offer different interest rate ranges, so compare private student loans to make sure you get the best rate you qualify for. Look at annual percentage rates, the most accurate way to compare interest rates. The APR reflects the actual cost of the loan, including accrued interest, capitalized interest, and applicable origination charges.

Have excellent credit

Private student loans are credit-based, which means the interest rate you get depends on your credit history. As a general rule, the higher your credit score, the lower the interest rate for which you are eligible. In addition to credit history, lenders usually assess income and other debts owed. The higher your income compared to your total unpaid debts, the more likely you are to benefit from a lower interest rate.

Apply with a co-signer

If you don’t have great credit or high enough income, you will likely qualify for a lower interest rate by applying with a co-signer who has good credit and a solid income.

Your co-signer will be responsible for making the payments if you don’t. However, they do not have to be subject forever – many lenders allow a release of the co-signer after the primary borrower has made their payments on time for a while.

Sign up for automatic payment

Most federal and private lenders offer an interest rate reduction of 0.25 points to borrowers who sign up to have their monthly payments automatically deducted from their bank account. Often the rate brackets advertised by lenders include the automatic payment discount.

In addition to saving you money, signing up for automatic payment can also give you peace of mind that you won’t have to worry about accidentally missing a payment.

Get all the discounts that apply

Some lenders offer additional discounts in addition to automatic payment discounts. These may include:

Loyalty discount. If you already have a bank account with a lender.

Discounts for opting for interest-only payments. If you choose not to defer payments until you finish your studies by making interest payments only while you are in school.

Discount to link automatic payment to an existing account. If you connect the automatic payment to a bank account you have with the lender.

Promotional discounts. Lenders will offer additional discounts for short promotional periods.

Decide between fixed and variable

Variable interest rates for student loans are generally lower than fixed rates. However, variable rates are subject to monthly or quarterly increase, depending on the lender. The fixed rates remain the same throughout the life of the loan. If you plan to pay off your loan very quickly, it may be a good idea to choose a variable rate. However, student loan interest rates typically rise as the Federal Reserve continues to raise the federal funds rate.

Choose the shortest possible term

Lenders usually offer a few options for the length of the loan or the length of the repayment period. Usually, you will get the lowest interest rate by choosing the shortest loan term. You will also save on interest because you will be paying interest for a shorter period. On the other hand, a shorter loan term means your monthly payments will be higher, so choose the shorter term that you can comfortably handle.

About Catherine Wilson

Check Also

Fintech Upstart teams up with banks and credit unions for small loans

FinTech Upstart plans to work with banks and credit unions to offer a hitherto scarce …

Leave a Reply

Your email address will not be published. Required fields are marked *