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Private loans are loans that are given by credit unions, banks and other private institutions that lend money to individuals and companies. These type of loans (private loans) are considered to be alternative loans because they are not structured like the main frame loans. When you opt for private loans as a student it means you will not get some benefits that come with state loans such as income based repayments plans, rescheduling provisions, fixed interest rates.
As a student you cannot just go and apply for a private loan, you have to find out if you are eligible for the loan before you consider applying.
Types of private loans
The two main types of private loans are private personal loans and private student loans. These two types quite similar but also different because of its target market.
Private personal loans
Money is an integral part of our daily lives and its here to stay. As individuals depend on money for everything from what we eat, what we wear to all other aspects. With this background of how much money means to us, not having enough or not having some at all can be a very uneasy feeling. Especially when you need to buy something and don’t have money for it. A loan that can help you do all you need to do without having to worry is private personal loans.
Personal loans are a general type of loan that most financial institutions give out to their clients.
Private personal loans on the other hand is connected specifically to private lenders (individuals and companies) who do not operate under strict laws.
Generally private loans from private lenders are on the high side because of the high interest rate associated with such loans.
However getting private personal loans at high interest rates does take away the advantages that it comes with it.
• Bad credit does not affect your chance
It’s a normal practice for bad credit borrowers to be refused loans by traditional lenders because of the risk they come with.
It is the opposite with private lenders, your credit history is not as important as you having proof of income and employment details.
• It’s easy to apply
In the past applying for a loan will take a long time even a day because of all the documentation you need.
This is not the case now as most of the applications are done online.
The online process is so fast and little documentation is needed.
Its so easy to apply for an application now that anybody can apply so far as you have access to a computer or phone with internet connectivity.
• Quick approval
Private lenders who give personal loans do not need the loan process to go through several departments before it is approved.
The process is mainly online so there is a loan officer who goes through your application and decides whether you qualify for the loan or not.
This decision is then approved by another officer and then you have your loan with a few minutes or an hour of your application.
Lately the longest your loan will take to get approval is a day, making it a preferred choice for many borrowers.
More about private personal loans
Knowing more about private personal loans is very vital before you make the decision of going for it. Your current financial circumstances should be an integral part when deciding. Private in this sense means the money you are borrowing is from a private lender and not the usual traditional lenders like banks, credit unions etc. The personal refers to the usage of the loan which is to say, you can use the loan for whatever you wish to instead of a reason being attached to it.
Like in the case of a mortgage loan, car or automobile loans where you get the loan for the specific purpose you requested for. In some cases the financial institution gets you to state your specs for the car and they get it for you. But with private personal loans you have all the freedom to use your money as you please. Just bear in mind that you will be paying for it plus interest which is high so will be best if you used it well (beneficially).
In most cases, borrowers of private personal loans are used for various reasons such as paying for emergency medical bills, home improvements, car repairs, holidays etc.
Unsecured and secured private personal loans
The private personal loans have two main branches which we will be discussing.
Secured and unsecured personal loans.
These two are on two opposite sides because one has a collateral attached to the loan whiles the other doesn’t. A borrower who gets a private personal loan based on his or her credit scores as well as credit history is said to have been given an unsecured personal loan. The credit score must be a good one so he or she can have their loan approved quickly. If the credit score is not good it might take much higher than necessary because the lender will like to make sure the loan being given will be paid back. So having a good credit score is more advantageous to the borrower because he or she will have options to choose from different lenders.
Examples of unsecured personal loans available are pay day loans, advance loans, installment loans etc.
Secured personal loans on the other hands depends on the assets of the borrower to get the loan. The collateral borrowers normally use are houses, cars and expensive jewelry which is close in worth to the amount being borrowed or more expensive than amount being borrowed. For lenders the purpose for a collateral is to have some security especially when the amount being requested for is very huge. In case of default from a borrower who has been given a secured personal loan, the lender sells the asset that was used as a collateral to recover the money that was loaned. In most cases this is an agreement reached by the borrower and lender so its stated in the agreement documents.
Private student loans
Attending college is expensive and this is even more serious when you don’t have any help.
Needing help to go through college is not a new thing. Some people are lucky to have their parents, or families support them through college so do not need external help.
However most people generally need some extra help and private lenders are here to help when you do not get the help needed from the state.
Sometimes before you get to college you might have used up all the help available (funds, grants and scholarships) so private student loans are the only help you can get.
Just like in the mainstream borrowing, where traditional loans are cheaper than those from private lenders, its same for federal and private loans.
Federal loans are given by the state so there are a lot of subsidies but with the private student loans, interest on loans are much higher.
In as much as private student loans are higher, when used for a degree which is valued it becomes so much worthwhile in the end.
Since you will be paying back the student loan after school you have to be careful when choosing especially with regards to the interest rate and fees that comes with the loan.
Some lenders do charge when you pay your loan earlier than expected, ask about all the these charges before you agree to any loan.
You don’t have to go for the first student loan offer you come across as that might be too expensive.
Continuation for private student loans
It will be best to shop around for better deals. This you can easily find online since most of these private lenders are online advertising their products.
Whiles on your search don’t forget to get a co signer for your loan since for students its mandatory to get a cosigner on the loan.
Your parents, relative or guardian can co sign for you, the most important thing is to make sure you get someone who has a good credit history.
Though it is not the co signer taking the loan, it helps with trust and also how much you will be given by the lender.
The better the co signers credit history the better your credit rating for the lender which reflects in the amount to be approved for you.
The task for the co signer is that, in the event that you do not continue paying your loan, he or she will take over.
And the likelihood that he or she will pay heavily depends on his or her credit history.
If it is bad it goes to say there is a possibility he or she will also default on payment whiles the opposite also says there is big chance the loan will be paid.
Another thing most cosigners aren’t aware of is that the repayment history of the student reflects on your credit history.
So it will be in both the borrower and his or cosigners interest to stick to the repayment schedule agreed on.
Advantages of private student loans
Its obvious that federal loans are much saver than private loans not forgetting all the benefits it comes with.
However there are some good sides to private student loans which cannot be overlooked.
The first is that it bridges the gap between students who do not qualify for federal loans and gives them a chance to be educated.
Another very important advantage is that you can borrow as much as the whole period of your studies will cost.
It is not same for federal loans where the amount that is approved to be borrowed is set by the government so it will be fair to everyone.
With that said the school you attend also determines how much aid you can have.
If you are lucky and the amount is lower than the maximum federal limit then you are covered.
But if you are not covered by the amount given by the federal government to attend college, then you might have to fall on private lenders.
Contrast between private student loans and federal loans
Loans generally give everybody some sense of relief when it comes to your finances.
Just as it gives you the relief when it comes to your finances, it also helps you to go through school and concentrate on your studies.
Taking a loan that works for you and your co signer (family) will help in the repayment due to the convenience.
For federal loans, the government is the one who gives such loans and it has many benefits and it is run under the laws of the state.
Private loans are however structured by private lenders (individuals and institutions) who set their own rules and regulations.
Due to this, private student loans are comparatively more expensive than the federal loans.
Below are some differences between federal and private students loans :
• Most private lenders if not all have different terms and conditions. Each lender sets their own conditions to a student loan.
One similar trend between the private lenders is that the tenure of the student loans ranges between five to twenty years.
The idea is that when a student completes school, he or she will need to settle into the ‘real’ world and start making money before the repayment starts.
On the other hand federal loans give you the chance of choosing from different repayment options such as income driven repayment.
This is where you get to arrange your repayments against your income.
Another repayment option is choosing a ten year standard repayment plan.
There are several repayment plans to choose from when you opt for the federal loans.
• Interest rates for private students loans are mostly variable though some private lenders give fixed interest loans.
Federal loans only have one interest rate structure and that is fixed.
So when the base rate changes it doesn’t affect the repayment amount or tenure of the loan with federal loans but it can change with private loans.
• Those who take federal loans can get their loans cancelled in certain circumstances.
One of such circumstance is when you work in the public sector or have been consistent with your loan repayment for a couple of years (ten years).
Part of your loan amount can be forgiven. Private student loans do not have that in their loan structure.
• Private lenders use a borrowers credit score as well as income to determine if a borrower qualifies for a loan.
Since these loans are for students there are many borrowers who do not have any credit history or working so a cosigner is needed in this case.
With federal loans a borrowers credit history or income does not come to play because anyone who qualifies for the loan is given the loan at the same interest rate.
How do I apply for a private student loan?
Having an understanding for what students loans are can help you choose the best loan available.
The next thing after choosing a private lender, is to apply for your student loan.
To apply for private student loans is quite easy because the applications are done online.
With online applications you need to have a computer or phone that has internet connectivity.
The information needed is basic : your name, date of birth, employer details, income etc.
These information must be from both the borrower and co signer that is if a cosigner is needed.
When you send all the information requested to the lender they will process it and approve if you meet all the requirements.
You can get your loan approved within the same hour you applied for the loan or latest within twenty four hours.
After approval lenders will typically call the school to confirm the loan amount and then send the money to the school.
The money from the loan goes to pay for tuition at the school and then the remaining funds is given to you to help pay for stuff like books, accommodation and any other school related cost.
Time to begin payment of the loans depends on you (borrower).
You can decide to start repayment right after you take the loan if you have the means to do so or you can start payment when you graduate and start working.
Borrowing what you need to pay your tuition fees and other school essentials with should be all you borrow so that paying back will not be a problem.
Lets discuss the interest rate on private loans
When looking for private student loans, you need to take a critical peek at the interest rate that the lender is offering on the loan.
The obvious truth is that the higher the interest rate on the loan the more money you will end up paying.
Based on different factors interest rate on private student loans differ.
Factors such as lender giving the loan, whether you go for a variable or fixed rate student loan and lastly whether your credit score is high or low.
Talking about a variable interest rate means the interest rate can change to be higher or lower during the tenure of the loan.
Whiles the fixed interest rate is when the interest rate does not change during the life of the loan.
Private student loans as of 2018 March ranges from 2.93 to 12.66 percentage.
With that said the figures above are not cast in stone so your interest can be much higher or lower liable to how good or bad your credit history is.
The more reason why you must ‘shop’ for private student lenders until you find one that has interest rates and other fees that favors you.
Elements to consider when evaluating lenders
• Having a credit history and conformable income are requirements for a private student loan, so if you don’t have any you will have to get a cosigner.
The cosigner must however have a good credit history so as to help with your loan request.
He or she must also be aware that in case of default the lender will come after them to retrieve their money.
• One thing about private student loans is that, the interest on the loan starts to accumulate as soon as the money is paid.
This means the longer you take to pay back your student loan, the more expensive your loan will be.
• Students who get federal loans have better repayment and forgiveness offers which are way better than private student loans.
• Characteristically private student loans have variable interest rates unlike federal loans that have fixed interest rate.
• Normally what makes the loan expensive are fees charged by the private lenders in addition to the interest rate.
Sometimes you will get a private loan with a low interest rate but the loan becomes expensive because the fees are on the high side.
• Applying for a student loan with a cosigner is advisable because lenders are more comfortable giving loans to students with cosigners.
In some cases the loan is cheaper especially when your cosigner has a good credit score.
• Those who take private loans, are students who have not been able to Pay off their tuition and other school necessities with their federal loans.
Most students will typically opt for federal loans because of all the advantages that comes with it.
However, private loans are also the option for some students especially when they don’t qualify for federal loans.
Also when the amount from the federal loans is not enough to cater for their tuition etc.
The good thing about private loans is that you can borrow as much as you need particularly when your cosigner’s credit rating is high.
Borrowing from a private student lender is always easy thanks to their requirements.
Due to the high interest rate associated with private loans, its advisable to take just what you need form private lenders so you can pay it off as quickly as possible.
Burdening yourself with so much debt after graduating from school can start you off on the wrong foot.
Before completion of school, try as much as possible to start paying off your loans gradually so that when you graduate the amount left to be paid will not be a lot.
In the meantime, if you are looking for a private loan in America you can apply for a private loan from Afterloans.com
Disclaimer: All loans offered through this website are subject to credit and underwriting approval. AfterLoans.ca is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to Canadian laws and regulations. Our lenders lend from $500-$5,000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that Canadian law allows.