When it comes to taking out a student loan small details can make a big difference. For instance, many people who are currently paying back their student loans are overpaying up to $18,000 over the life of the loan. If you want to avoid feeling that pain, it’s a good idea to do some research now. It’s actually not hard at all.
Not All Lenders Are Alike
Companies that offer student loans can vary significantly. One reason is that all loans have multiple variables which aren’t standardized. For example, each loan may vary due to its:
- Minimum loan amount – The least amount you can borrow.
- Maximum loan amount – The most you can borrow.
- Interest rate – Lender may offer fixed or variable interest rate loans – or a choice.
- Terms – How long you have to pay off the loan.
- Eligibility – Some loans only available to residents of a certain area or state.
As you can see, comparing private student loan lenders makes sense as you want to choose the one that fits your needs.
Interest Rates Rule – But Which One?
Of all the differentiating factors, interest rates are the most important thing to consider. There are two types of interest rates: fixed and variable. Fixed rates mean that over the life of the loan, your interest rate will not change. These rates are typically higher, but you have the guarantee that the rate stays fixed. Variable rate loans usually start with lower rates, however, they can change over time. Over time, variable rate student loan interest rates can potentially go higher than fixed rates.
According to Investopedia, you usually end up paying less if you go with a variable interest rate loan compared to a fixed rate. One thing to consider is that if your loan term is very long, you might consider a fixed rate loan as protection against any interest rate spike in the distant future.
Refinance If You Need To
Earlier we mentioned many borrowers are overpaying on their student loans. Even worse, many could refinance their loan now and begin saving money. Refinancing swaps a current loan for a new one with lower interest.
This leads us to a third strategy for those taking out brand new student loans. The best approach might be to take out a variable interest rate loan now. If interest rates go up, then you might be able to refinance with a lender that offers a lower rate. Big interest rate hikes are rare, but even if it does happen, you still have options.