What Are Private
Student Loans?
Private student
loans are issued based on credit. This means two things for those applying for
a private student loan.
·
The loan will be based on the borrowers credit score
·
Normally, the better the credit score, the better the interest rate
What this means to you
Some students
benefit by applying for a private student loan. The borrower must remember
though, if he/she has a cosigner, the cosigner is just as responsible for
repayment of the loan as the borrower is. By cosigning your name a loan, you're
guaranteeing that you will repay the loan should the borrower fail to make
payments.
A lower interest
rate can mean that the borrower will have lower monthly payments. It can also
mean the loan can be paid back quicker.
Who needs a
cosigner?
Generally there are
two circumstances when a consigner is needed, even if the borrower has some
credit.
One of those times
is when the borrower does not have an established credit history which leads to
a low credit score. Having a cosigner when applying for private student loans
such as a Sallie Mae Signature Loan or a Tuition Answer Loan may increase your
odds of being approved.
The second
circumstance to use a consigner would be to obtain a loan with a lower interest
rate. The difference in monthly payments on a $10,000 loan can be $50 or more
when comparing a 8% interest rate and a 12% interest rate. Also the difference
in the accrued interest rate could be as much as $4900 over the life of the
loan. Certainly something to give thought to!
Pitfalls To Look
Out For
Having a cosigner
can be a win-win situation, but it can also have its drawbacks. Here are some
things to consider before cosigning for a private student loan.
·
Make sure if the borrower does fail to repay, that you can make the payments
yourself.
·
Make sure the person you're cosigning for is trustworthy. Cosigning
between girlfriends/boyfriends is never a good idea. If the romance goes South,
the other one could be left holding the bag. Cosigning for a bum who won't work
or flunks out of school can be a hard pill to swallow also.
·
If you do cosign, make sure you get copies of all the papers. Remember,
those with the best paper trails win.
·
Get an agreement, in writing and notarized, that the borrower will repay
you all fees incurred including the monthly payments, should they fail to repay
the loan and you're forced to. You don't want to wind up years down the road
and the borrower tells a Judge that you volunteered to repay the loan as a
gift.
Now that you have
this information, if you cosign for a loan, make sure you do it right!
Cosigning for a private student loan has it's pros and cons, just make sure you
know what they are before signing on the dotted line.
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