Shopping around for private student loans is essential.
I say that as someone who is not a fan of private student loans. However, I recognize that each year families depend upon banks and lenders to pay for school.
Because I accept this reality, I try to help borrowers make informed decisions. Some student loans might be bad decisions, while others are definitely bad decisions. Shopping around allows students to avoid objectively bad loans.
What Does a Good Private Loan Look Like?
One of the biggest concerns for any borrowers should be the interest rate.
It is hard to clearly define a “good” interest rate. Each borrower and their cosigner has different circumstances that can influence rate options.
Instead, the process is the crucial detail. Way too many students simply accept the first loan approved without giving any thought to the interest rate or loan terms.
This might sound obvious to some, but finding the lowest interest rate possible is essential. For many students, it will be years before they start repaying their loans. It will be even longer before the loan gets paid off. All this time allows interest to grow the loan balance. Finding a lower interest rate means spending less to go to school.
Be Sure to Pick the Right Cosigner:Most students will need a cosigner in order to qualify for a private student loans. Cosigning can have major consequences for the cosigner, so it is important to find the right person to cosign the loan.
Why Shop Around for Private Loans?
Shopping around for your student loan is the only way to ensure that you will pay as little interest as possible on your student loans.
Each student loan company evaluates applications differently. The formula used is a closely guarded secret, but some lenders care more about credit scores than others. Some lenders will offer better rates depending upon your cosigner. Other lenders might give more weight to the school you attend or the major selected.
Because every lender evaluates applications differently and because each borrower has their own unique circumstances, it is impossible to say who has the best rates. Often the lowest advertised rate and the actual rates offered to borrowers are different. Thus, we encourage borrowers to shop around to find out the lender that will give them the best actual rate, based upon their individual application.
Fortunately, applying for student loans is much easier than it was 30 years ago. Rather than driving from bank to bank, borrowers simply need to take a few minutes to fill out applications and await the results. The entire process can be finished in a couple of hours. The money saved could be worth thousands.
If nothing else, shopping around will demonstrate to your cosigner that you put time and effort into the process. This display of responsibility will make them feel a little more at ease accepting the risk that comes with cosigning student loans.
Won’t Multiple Applications Hurt My Credit Score?
No. A single application can temporarily reduce your credit score by a few points.
However, the credit agencies treat multiple applications in a short period as one single application. The credit agencies typically treat student loan applications within a 30 day period as shopping around. As long as you get your applications submitted within this time period, there is no harm to your credit score.
How do I Shop Around?
The key is to cast a wide net. We suggest starting with a large list of potential lenders that you are willing to work with. Once you have your list of lenders, submit your applications. It is that easy.
Once the approvals start to roll in, you can compare interest rates, repayment plans, and lender reputations.
One shortcut to shopping around is to check rates with a company like Credible. By submitting one Credible application, borrowers can check their rates with many different lenders. The downside to Credible is that not all lenders are on the platform. Checking rates with Credible is part of shopping around, but it shouldn’t be the only step taken.
Be sure to keep track of the student loan agreements you sign and the lenders you chose. This information will be beneficial once repayment time starts.
Don’t Cut Corners: Shop Around for Private Student Loans
Shopping around for student loans is a relatively simple process, and it can save a ton of money.
Failing to do so is more than just lazy… it is expensive.