Figuring out how to fund your education is a bit like solving a puzzle. For many students, there are a lot of moving pieces—such as family savings, grants, scholarships, and loans. If you decide that private student loans are a good fit, it’s time to identify the right loan for you. There are lots of things to consider when you compare private student loans. Evaluating the details could help you save money in the long run.
How to choose a student loan (and why the right one matters)
Not all private student loans are created equally. Interest rates, fees, and terms can all vary. That means your monthly payment and total interest paid can be very different from one lender to the next. Doing a little research on the front end can go a long way. Here’s how to get started.
Compare interest rates and loan fees
When you’re getting ready to compare private student loans, know that interest rates and fees matter.
- Are interest rates fixed or variable? You’ll want to know which type of interest rate a lender offers. Fixed rates are set at the time you apply and are approved, and they stay the same throughout the life of the loan. The interest on a variable rate loan may change periodically. These types of loans are linked to an index so the interest rate can increase or decrease over the life of the loan.
- What are the interest rates? When you compare private student loan lenders, keep in mind that they often advertise their lowest possible interest rates. In reality, interest rates may vary depending on your credit history and other factors. If your credit score isn’t as strong as you’d like, you may get a better rate if you apply with a creditworthy cosigner.
- Are there fees? When deciding how to choose a student loan, look out for fees. Some lenders may charge a fee just to apply (an application fee) or to get the loan (called an origination fee, which is usually a percentage of the total amount of the loan). Borrowers may also be penalized for making late payments or putting their loans on hold through forbearance.
- What is the Annual Percentage Rate (APR)? This number represents the annualized cost of credit. That includes finance charges like interest, fees, and other loan costs. The APR may be higher or lower than the interest rate. Knowing the APR makes it easier to compare private student loans since it reflects the total cost of borrowing the money.
- What are the repayment options? Most private student loan lenders offer repayment plans that range anywhere from 5 to 20 years. A longer term works out to a lower monthly payment, but you’ll pay more in interest over the life of the loan. A shorter term translates to a larger monthly payment, but you’ll save on interest. You’ll ultimately want something that works for your budget.
Consider borrower benefits and loan discounts
Some private student loans come with money-saving benefits. That might include:
- No fees, including application, origination, and late fees
- An interest rate reduction if you enroll in automatic payments
- Cash rewards for good grades
Carefully read the loan terms and conditions to see if you will qualify for any advertised benefits. It could add up to significant savings.
Think about customer service
When it comes time to compare private student loans, choose a lender that’s known for its customer service. Reading online ratings and reviews can help guide you in the right direction. You want a lender that’s knowledgeable, responsive, and has a good reputation. Lenders offer a variety of ways to contact them, so look for one you can easily reach if needed.
Find the right private student loan for you
Choosing the right lender is an important decision—and not one to be taken lightly. If you’re borrowing a substantial amount of money to pay for college, you’ll want to find the best interest rate, terms, and conditions possible. Money-saving benefits and strong customer service can be the cherry on top. When you compare private student loan lenders, shopping around could very well pay off.