How to Apply for Private Student Loans

Applying for private student loans should not be something you apply for unless you can't get enough money from grants, scholarships and federal loans. Private student loans are student loans that are financed and managed by private companies. They are usually used to cover things like the costs of living in the dorm, meal plans and any other living expenses. Since they are privately funded, they don't follow the same rules and restrictions as government loans. And while private loans usually have lower rates and larger value then federal loans, they also carry stiffer penalties and higher interest rates.

Qualifications and Values of Private Student Loans

In order to qualify for private loans, you need to have a good credit history and you need to fit the lender's qualifying debt-to-income ratio. In other words, if you have debt, it can't be any larger than a certain portion of your income. You must also be enrolled on at least half-time bases at a federally accredited 4 or 5-year college or university.

You will be able to borrow up to $100,000. The actual amount you will get will depend on your credit history. If your credit history leaves something to be desired, you will probably be better off getting a co-signer. This can be your parent or some other relative who has a good credit history and a good track record with paying back his or her obligations on time. If you apply with the co-signer, there will be no limit on how much you can borrow.

Finding a Private Student Loan

There are a number of private student loan lenders you can choose from. They can be found using business directories such as Yellow Pages. There are a number of factors you need to consider before deciding which insurance provider is right for you:

Interest rates - look for a loan that has the lowest interest rate possible. This is trickier than it sounds. Your interest rate will be based on your credit history. The lenders usually advertise the lowest rates possible, but unless your credit history is utterly flawless, chances are that your rates will be higher. As with federal student loans, your interest rate will change over time. But while federal student loan rates change once a year, private student loan rates will change once a month. Furthermore, lenders have a right to change your rates based on your unique circumstances, such as, for example, your credit rating.

Reputation of the lender - as with other types of loans, you should beware of lenders that offer seemingly great loans solely for the sake of taking advantage of you. Before applying with a lender, check it's name with the Better Business Bureau. If you are looking them up on the Internet, beware of funneling sites - websites that redirect you to major lenders. You would be able to get better loans if you apply with the major lenders directly.

Repayment options - this includes how long you will have to repay your loan in full and what kind of monthly payments you will have to make. This also includes the loan extension options.

Grace period length - a grace period is the time between the end of the school year and the time you will have to start paying back the loan. The grace period usually doesn't apply if you are enrolled on half-time bases. If you are enrolled full-time, it's usually no more than six months.

Your financial Needs -  many private lenders will try to get you to borrow more than you need. While it sounds tempting, it will make it more difficult for you to repay your loan. Before you apply, calculate exactly how much money you will need for the next for years of education and stick to that minimum.


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