Private Loan

A lot of the government student loan schemes need no credit check and provide a student with significant financial aid. But these programs are based on need and normally carry other criteria which may make it difficult to qualify. Even if a student does qualify, these loans only cover a proportion of the whole education bill in many instances. If students are caught in this position then they could look to private alternative college loans to make up the difference.

Private alternative student loans too have their own set of pros and cons. A credit check is almost universally required and this is not a problem as long as you have a good credit history. The problem is that ‘good’ is very much a relative term and if it is not good enough then you might find that you are paying higher than the normal interest rates.

Over and above the quoted rate of interest there are additional monetary implications to private alternative loans. Fees will generally be added on to nominal loan amounts and a reasonably small loan of $3,000 can easily have fees of 4% added before distribution. That means $120 of the total loan will not be seen by the student but nevertheless has to be paid back. As a very rough guide, every 3% of fees is equivalent to 1% added to the stated interest rate.

Private loans do have some advantages.

The first and probably the most obvious advantage is that funds are available. Private lenders make a profit from the interest and fees which they charge and so have a vested interest in making funds available to borrowers and they will try very hard to see that each and every applicant qualifies. Federal lenders on the other hand adhere to an inflexible set of criteria and there is generally no appeal if your loan application is turned down.

Not having to deal with that frosty and all too often irrational bureaucracy is another benefit of private loans. Private lenders have customer service departments which are there specifically to answer questions so that customers can get the answers which they are looking for. Federal loan schemes typically have contacts and help available as well but the answers one gets are hit or miss when it comes to quality.

Other considerations which make private alternative loans especially desirable include:

The fact that neither parents nor students have to fill out FAFSA (Free Application for Student Aid) forms and provide a lot of additional documentation. Private loan applications are a lot simpler and indeed the whole process is easier. However, interest rates and fees could be higher or lower according to the particular loan program.

The best private loans carry zero fees and interest rates which are roughly equal to the prime rate. This is the rate which banks charge each other or charge their largest and special customers. If you are able to get an interest rate at prime then this is a very good deal and locating a rate at 1% below prime is a truly great deal.

To obtain that sort of loan it is generally necessary for you to have a very good credit history or to apply for the loan with a co-signer to the loan who has a great credit history.

At the end of the day, the only way to find out whether an alternative loan will satisfy your requirements is to go out into the marketplace and see exactly what is available.

By: Donald Saunders