January 31, 2022—Loan Rates Fall – Low Cost Advisor
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Rates on 10-year fixed-rate private student loans fell last week. If you’re interested in picking up a private student loan, you can still get a relatively low rate.
From January 24 to January 28, the average fixed interest rate on a 10-year private student loan was 5.98% for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace. On a five-year variable-rate loan, the average interest rate was 4.77% among the same population, according to Credible.com.
Related: Best Private Student Loans
Last week, the average fixed rate on 10-year loans fell by 0.77% to 5.98%. The week prior, the average stood at 6.75%.
Borrowers in the market for a private student loan now can receive a lower rate than they would have at this time last year. At this time last year, the average fixed rate on a 10-year loan was 6.61%, 0.63% higher than today’s rate.
Let’s say you financed $20,000 in student loans at today’s average fixed rate. You’d pay around $222 per month and approximately $6,621 in total interest over 10 years, according to Low Cost Advisor’s student loan calculator.
Average variable rates on five-year loans moved up last week, from 3.82% on average to 4.77%.
In contrast to fixed rates, variable interest rates fluctuate over the course of a loan term. Variable rates may start lower than fixed rates, especially during periods when rates are low overall, but they can rise over time.
Private lenders often offer borrowers the option to choose between fixed and variable interest rates. Fixed rates may be the safer bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it could be beneficial to choose a variable loan.
If you were to finance a $20,000 five-year loan at a variable interest rate of 4.77%, you’d pay approximately $375 on average per month. In total interest over the life of the loan, you’d pay around $2,519. Of course, since the interest rate is variable, it could fluctuate up or down from month to month.
Related: How To Get A Private Student Loan
How To Compare Private Student Loans
When comparing private student loan options, take a close look at the overall cost of the loan. This includes the interest rate and fees. It’s also important to consider the type of help the lender offers if you can’t afford your payments.
Keep in mind that the best rates are only available to those with good or excellent credit.
Experts generally recommend that you borrow no more than what you’ll earn in your first year out of college. While some lenders cap the amount of money you can borrow each year, others don’t. When comparing loans, figure out how the loan will be disbursed and what costs it covers.
How To Get a Private Student Loan
Private student loans may be a good choice if you reach the annual borrowing limits for federal student loans or if you’re otherwise ineligible for them. You should consider a federal student loan as your first option, as interest rates are generally lower and you’ll enjoy more liberal repayment and forgiveness options than with a private loan. For example, the interest rate for federal undergraduate student loans is 3.73% for the 2021-22 school year.
When shopping for a private student loan, you’ll generally need to apply directly through a non-federal lender. This includes banks, credit unions, nonprofit organizations, state agencies, colleges and online entities.
It’s important to note that you’ll need a qualified co-signer if you have limited credit history, as undergraduates often do.
When applying for a private student loan, take into consideration the following:
- Your qualifications. Private student loans are credit-based. Lenders typically require a credit score in the higher 600s. This is where having a co-signer can be particularly beneficial.
- Where to apply. You can apply directly on the lender’s website, via mail or over the phone.
- Your options. Look at what each lender offers and compare the interest rate, term, future monthly payment, origination fee and late fee. Also, check to see if the lender offers a co-signer release so that the co-borrower can eventually come off of the loan.
How Your Interest Rate Is Determined
The rate you receive depends on whether you’re getting a fixed or variable loan. Rates, in part, are based on your creditworthiness—those with higher credit scores often get the lowest rates. But your rate is based on other factors as well. Credit history, income and even the degree you’re working on and your career can play a part.