If there’s one thing that makes people nervous about a private student loan, it’s the question of the interest rate. Will it go up? Is fixed or variable better? What the heck is LIBOR?! All these questions will be answered, friend… so read on!
1. Low private student loan – if your credit is poor, get a co-signer.
Plain and simple, a co-signer with a strong or even above-average credit history can make all the difference in what you are offered for a private student loan interest rate.
A co-signer could be anyone: a parent, grandparent, extended family member, family friend, etc. Unlike the Parent PLUS loan, you are not restricted to a parent or legal guardian to get a private student loan.
2. Use your 30-day credit window wisely.
Did you know that when you are shopping for a private student loan, you have a 30-day window from the first application to go nuts applying with different lenders with no penalty?
That’s right, you will not get your credit torn apart for comparison shopping. At the end of the 30-day window, you will only have the loan(s) you accepted on your credit report or one inquiry if you choose to decline them.
The benefit of this ability is the fact that lenders often use differing indexes and formulas to calculate your interest rate. Essentially, this means that one lender could offer you a much more attractive rate than another and you have the power to pick instead of being stuck with what you’re given.
3. Take advantage of private student loan APR reductions.
One of the advantages of the current economic state is the lenders are all vying for your money. This means that they’re more inclined to amp up their feature and benefits packages for their products — in many cases their interest rate reductions.
An APR reduction for paying your monthly bill via auto-debit is not uncommon. Generally, they clock in around -0.25% APR. In addition, some banks will give you further reductions if you pay out of accounts through them; think of it as doing double business with the lender.
4. Research your index before you commit to it.
Of the various indexes out in the world, the London Interbank Bank Offering Rate (LIBOR) and Prime Interest Rate are typically the most commonly used by lenders. Pay special attention to their volatility over 6-month and 12-month periods; if the index is known to swing dramatically, so will your private student loan interest rate.