Private Alternative Education Loans Are Usually Required In Addition To Federal Loans
A lot of the Federal student loan programs require no credit check to be carried out and provide students with substantial financial aid. These programs are however need based and usually carry additional criteria which can make it difficult to qualify.
A lot of the Federal student loan schemes need no credit check and provide a student with significant financial aid. These programs are however based on need and frequently carry other criteria that might make it hard to qualify. Even if students do qualify, these loans only cover a proportion of the total cost of education in the majority of cases. When students find themselves in that situation then they can turn to alternative education loans to make up the difference.
However, alternative educational loans also have their difficulties. A credit check is almost universally required and this is not a problem as long as you have a good credit history. The problem is that 'good' is very much a relative term and if your credit history is not quite good enough then you might find yourself paying more than the optimal rates of interest.
On top of the stated interest rate there are additional monetary implications of alternative loans. Fees will generally be added on to nominal loan amounts and a quite small loan of $3,000 could easily have 4% in fees applied before distribution. This means that $120 of the total loan is never seen by the borrower but nevertheless had got to be paid back. As a very rough guide, every 3% of fees is equivalent to an additional 1% added to the normal interest rate.
Private loans do carry a couple of advantages.
The first and possibly the most obvious one is that money is available. Private lenders make their money from the interest and fees that they charge and so have an interest in making money available to borrowers and they will try hard to ensure that every applicant qualifies. By contrast Federal lenders work under a rigid set of criteria and there is frequently no appeal if your loan application is turned down.
Avoiding that unwelcoming and frequently illogical bureaucracy is another advantage of private loans. Private lenders maintain customer service departments that exist specifically to answer queries so that borrowers can get the answers that they are looking for. Federal loan schemes generally have contacts and help available as well although the answers one gets are more miss that hit in terms of quality.
Other things that make alternative loans particularly desirable include:
The fact that parents and students do not have to fill out FAFSA (Free Application for Student Aid) forms and provide a mountain of additional documentation. Private loan applications have a tendency to be much simpler and the whole process is easier. Neverthless, interest rates and fees may be higher or lower depending on the individual loan program.
The best private loans will have no fees and rates of interest that are about equal to the prime rate. The 'prime rate' is the rate that banks charge each other or charge their largest and most favored customers. If you can find an interest rate at prime then this is a good deal and locating a rate at 1% below prime is a great deal.
To obtain this sort of loan it is generally necessary to have an excellent credit history or have a co-signer to the loan who has a great credit history.
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