Applying for a Private Student Loan: A Step-by-Step Guide

Obtaining a private student loan can often mean the difference between being able to afford the school of your dreams and having to settle for something less. There are several differences between federal student loans and private student loans. The chief difference is that private loans require a good credit history. However, there are other loan programs available to meet most students' needs. You can improve your odds by following these steps:

Step One: Determining Your Need

Before you start shopping for private student loan funding, you should determine how much you will actually need to borrow. Because interest on private loans begins to accrue the moment the loan is disbursed, it is important that you do not take any more than you need on a private loan. Determine the total cost of your education, including room and board, and then subtract federal aid and grants, scholarships, work study funds and other sources of support. The balance should be what you would consider for private loan funding.

Step Two: Choose a Lender

Many lenders who offer federal student loans also offer private student loans. It may be a simple process to apply for a private loan with an existing lender, but to make sure you are getting the best possible interest rate and saving yourself the most money, be sure to shop around. Choose a lender who offers low interest rates as well as the ability to obtain reduced rates through on-time payments, automatic debits, and other options.

Step Three: Complete Your Application

To complete the application, you should gather as much information about your income and debt as you have available. Typically, you will need to provide verification in the form of paystubs and tax returns of your income. Complete the application thoroughly and carefully. Do not misrepresent your information. You are allowed to have a co-signer; for dependent students, a parent or older sibling might be willing to co-sign to help you obtain a loan. For independent students, a spouse can co-sign in order for his or her income to be counted.

Step Four: Loan Approval

Most lenders offer a quick and painless application and approval process, with notification of your loan approval happening within 24-72 hours and funding within 10 days. While this is the typical timeline, if you know you are going to need private student loans to fund your education, you should apply early to make sure you have everything you need.

Remember, private student loans should always be considered the loans of last resort. Exhaust all of your other options first, because private student loans do not have the same flexibility of other loans (i.e., deferment and forbearance options when you are in school or are having financial difficulty). Private loans are often only available at much higher interest rates than federally guaranteed student loans, particularly if you do not have a qualified co-signer, so be sure you weigh carefully your need for this kind of loan.

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