Brought to You by Our Partners at College Ave Student Loans
Shopping around for a loan can seem overwhelming, especially if it’s the first big financial decision you’ve had to make. Knowing what to compare while shopping around for loans can make the process a lot easier, and can help you select the loan that’s best for you.
Our partners at College Ave Student Loans shared a few things to consider when comparing different student loan options.
Every student loan comes with an interest rate; which is essentially the cost of taking out the loan. If you’re taking out a private loan, different factors will affect your interest rate, such as your credit score (or your cosigner’s credit score). Shopping for a low rate is important – no one wants to pay more than they need to in interest charges – but remember that the rate isn’t the only factor that affects the total cost of your loan, or the amount of money you’ll be required to pay each month.
When thinking about interest rates, you’ll also want to carefully consider whether you’d prefer a fixed interest rate or a variable interest rate. Fixed interest rates won’t change while you’re repaying your loan, whereas a variable interest rate can fluctuate; that also means that your monthly payment typically doesn’t change with a fixed rate but it could go up (or down) with a variable rate. When you’re taking out a student loan, the starting variable rate will usually be lower than the offered fixed rate, but the fixed rate comes with the security of knowing what your rate and payment will be. Federal student loans only offer fixed rates, whereas private lenders may offer both fixed and variable rates, depending on the lender.
Aside from interest rates, some loans also come with loan origination fees that borrowers should consider when comparing loans. These are one-time fees that are paid upfront when the loan is first taken out, and they’re usually part of the amount you are borrowing.
Federal student loan origination fees typically range anywhere from 1.068% to 4.276% of the total loan amount, depending on the specific type of federal loan. Here’s an example of how the fee affects the cost of your loan: a 4.276% origination fee on a $15,000 loan means that roughly $640 will be added to the loan to cover the fee.
Many private student loans, like the ones we offer at College Ave, don’t have origination fees, but don’t assume that there aren’t any. Make sure you ask the question when you’re shopping loans.
Although the monthly payment is an important factor to consider, don’t ignore the total cost of the loan over the years. The interest rate, how quickly you begin making payments, how many years you take to repay the loan and the amount borrowed are key factors that affect the total cost of a loan. We provide a student loan calculator that allows borrowers to see what the total cost will be (and ways to reduce it).