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10-year fixed-rate private student loan rates increased last week. If you want to take out a private student loan, you can still get a relatively low rate.
The average fixed interest rate on a 10-year private student loan was 5.81% from October 18 to 22. This is for borrowers with a credit score of 720 or higher who have prequalified on Credible.com’s student loan market. The average interest rate on a five-year variable rate loan was 4.19% among the same population, according to Credible.com.
Related: Best private student loans
Fixed rate loans
The average fixed rate on 10-year loans climbed last week from 0.40% to 5.81%. The previous week, the average stood at 5.41%.
Borrowers looking for a private student loan can now benefit from a lower rate than they would have at this time last year. At the same time last year, the average fixed rate on a 10-year loan was 7.41%, 1.60% higher than the current rate.
Let’s say you funded $ 20,000 in student loans at today’s average fixed rate. You would pay around $ 220 per month and around $ 6,417 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Average variable rates on five-year loans increased last week from an average 3.74% to 4.19%.
Unlike fixed rates, variable interest rates fluctuate over the life of the loan. Variable rates can start off lower than fixed rates, especially during times when rates are generally low, but they can increase over time.
Private lenders often offer borrowers the option of choosing between fixed and variable interest rates. Fixed rates may be the safest bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it might be beneficial to choose a variable loan.
Financing a private loan of $ 20,000 over five years at 4.19% would result in a monthly payment of approximately $ 370. A borrower would pay $ 2,203 in total interest over the life of the loan. But the rate in this example is variable, and it may go up or down every month.
Related: How to get a private student loan
Buy private student loans
First, take a look at the overall cost of the loan. Consider both the interest rate and the fees. Also consider the type of help that each lender offers if you are unable to meet your payments.
If you have good or excellent credit, you have a better chance of getting the best interest rates.
How much should I borrow? Experts generally recommend that you borrow no more than what you will earn in your first year out of college. How much can you borrow? Some lenders cap the amount you can borrow each year, while others don’t. When looking for a loan, find out from lenders how the loan is disbursed and what costs it will cover.
How to get a private student loan
If you meet or don’t qualify for annual borrowing limits for federal student loans, private student loans may be a decent option. But consider a federal student loan as your first option, as interest rates are generally lower. For example, the federal undergraduate student loan interest rate is 3.73% for the 2021-2022 school year. You will also benefit from more liberal repayment and forgiveness options with federal student loans.
Obtaining a private student loan usually involves applying directly to a non-federal lender, such as a bank, credit union, or online entity. You can also get a private student loan through a non-profit organization, government agency, or college.
Keep in mind that undergraduates with limited credit histories often need a co-signer who can meet the lender’s borrowing requirements.
Here is what to consider when applying for a private student loan:
- Make sure you qualify.Private student loans are credit-based and lenders typically require a credit score of around 600. This is why having a co-signer can be particularly beneficial.
- Apply directly to lenders.You can apply directly on the lender’s website, by mail or by phone.
- Compare your options.See what each lender is offering and compare the interest rate, term, future monthly payment, origination fees, and late fees. Also check to see if the lender offers a co-signer discharge so that the co-borrower can potentially opt out of the loan.
How your interest rate is determined
Lenders offering private student loans generally offer fixed and variable interest rates. These rates are, in part, based on your creditworthiness. Generally, the higher your credit score, the lower the interest rate you will receive. But credit history, income, the degree you are working on, and your career can all factor into the interest rate you receive.
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