The Basics of Private Loans

While you are going through the Financial Aid process, the words “Private Loan” may come up. I’ve found some really good FAQ’s from the EdFund website. I hear these questions everyday and I think they are valid ones at that. So here ya go:

What are the differences between a federal student loan, a private educational loan, and a personal loan?

A federal student loan is insured by the government and may be offered under different program names, including: Stafford, Perkins, etc. Federal student loans are not based on credit but on enrollment requirements, and they come with many benefits. A private educational loan is offered by a lending institution, is based on credit, and is not insured. Both federal and private loans are for educational purposes. A personal loan is also offered by lending institutions such as banks or credit unions. However, these loans may be used for a variety of reasons in addition to education such as purchasing a car or remodeling a home.

How do I know if I need a private loan?

As a general rule, it's best to limit your borrowing during school. So if you find that the difference between your financial resources (savings, income, financial aid, assistance from parents and relatives) and the cost of education is too much to cover, then you may need to consider a private loan. However, there are other reasons students borrow private loans:

• Enrolled less than half-time 
• Reached federal student loan maximums 
• Additional expenses not covered by federal loans

What credit score is required to qualify for a private loan?

Each loan has its own eligibility and credit requirements. Keep in mind that the closer you are to the minimum score, the higher your interest rate will be. This will translate into higher monthly payments, costing you more money. The better your credit score, the lower your interest rate. If you are concerned that your score may be on the low side, order a copy of your credit report and see if you can clean it up before applying for the loan!

What if my co-signer doesn't have good credit?

It does no good to have a co-signer with bad credit. You'll either end up with a higher interest rate or, at worst, be denied the loan altogether. Consider your co-signer choice carefully. If you absolutely can't find anyone with good credit to co-sign for you, you may have to apply and hope for the best. But if you are denied because your co-signer has bad credit and you have exhausted all other options, don't give up! You may just need to take some time off and clean up your credit, so that you can qualify for a private loan.

Remember, an education is the most important investment of your life and is well worth the time and money!

So these are just a handful of questions that you may have. If there is something that was on your mind and wasn’t covered above, just give me a buzz!

Matt Berenty
.(JavaScript must be enabled to view this email address)
818.729.9420