If you have spent any time on this site, you know we are not fans of private student loans. That being said, we realize that each year college students across the country will borrow private student loans to fund their education. Because we accept this reality, we try to help borrowers make informed decisions so that they regret their decision to borrow private loans as little as possible.
Without question, the smartest thing a borrower can do when looking for private student loans is to shop around. Way too many students simply accept the first loan that gets 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.
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 that they use is a closely guarded secret, but some lenders care more about credit score 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 program that you are in.
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 the time and effort that you have put 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, multiple applications in a short period of time is treated by the credit agencies 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 Credible. By submitting one Credible application borrowers are able to 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 that you sign and the lenders that you chose. This information will be very helpful once repayment time starts.
Shopping around for student loans is a fairly simple process and it can save a ton of money. Failing to do so is more than just lazy… it is expensive.