Student Loans With Low Interest Rate
If you’re a student looking to pay for your education, loans should be the last resort. The first step is to determine if a student loan is even necessary. There are plenty of ways to pay for college without taking out loans, including scholarships, grants and even working while in school. If you do decide that a loan is necessary, there are several factors that could affect your interest rate and monthly payments.
The amount of money you can borrow
The amount you can borrow depends on your financial need, family income and assets, the number of people in your family and the college’s cost of attendance.
Your financial need is based on how much money you will be spending each year to attend school. Your federal student aid award letter contains a calculation that determines how much money you may receive from the federal government as well as from private sources like banks or schools. This calculation takes into account things such as:
- The number of people in your family (if any) who are eligible to file taxes with their own Social Security numbers
- Whether you have dependents (spouse or children) who live with you while attending college
The maximum amount that students can borrow each year varies depending on whether they have dependents living with them while attending school (family size).
The number of years to pay back your loan
There are two main types of loans: fixed and variable. A fixed rate loan has a pre-determined interest rate, which you will be charged for the entire time you have the loan. The advantage is that you know exactly how much to pay each month, but this can make it hard to budget when interest rates fluctuate over time. A variable rate loan’s interest rate (and therefore monthly payments) changes according to market conditions; if the economy is strong, then your payment may increase as well because your lender will charge more for money. However, if the economy weakens, then you might get lucky and see a decrease in your bill!
If you’re interested in taking out one of these types of loans—or even just learning more about them—check out our glossary entry here: [Glossary Link].
Your credit score
Your credit score is a number that represents the likelihood that you will repay your loan. A credit score is based on several factors, including your payment history and how much debt you have compared to how much income you earn. The formula used to calculate your credit score is proprietary and confidential, but generally, it’s calculated by a credit reporting agency such as Experian or TransUnion.
The higher your score, the better—and thus the lower-interest rate loans are often reserved for people with good or excellent scores (720+). However, there are options available even if you don’t have an impeccable record:
The interest rate for your loan
When you borrow money, the lender charges interest. The interest rate is a percentage of the loan amount that will be charged each year, month or day on your outstanding balance. The interest rate is determined by the lender and varies depending on what type of loan you’re taking out. If a lender offers you two different student loans at different interest rates, it’s important to understand how each one works so that you can choose which one best suits your needs and budget.
The first step is to determine if a student loan is even necessary.
The first step is to determine if a student loan is even necessary. If you can’t afford to pay for school without one, then by all means get one. But don’t sign up for a loan that will cost you more money than it saves.
When deciding which type of student loan to take out, consider:
- The cost of the loan
- The interest rate
There are many factors to consider when choosing the right student loan for you. We hope this article has helped you understand some of the basics so that you can make an informed decision about your next move.