A loan can give you the financial means to accomplish important life goals, like graduating from college. If you’re new to the world of lending, taking out your first loan can be daunting. There are many details to consider, from terms to interest rates. Plus, there are many different companies to choose from, which can make the process even more overwhelming. Don’t worry, though; all the information you need to make a smart decision when choosing a lender is available. You just have to do a bit of research. This guide provides an introduction to some top lenders and is designed to help you choose the best loan company for you.
The first step to choosing the right student loan option to suit your needs is understanding how student loans work. Let’s start with the basics: A student loan involves borrowing money from a private or governmental lender to pay for college. Educational loans are unique from other types of lending, like home improvement loans, small business loans, and auto loans. The loan purpose impacts what lending opportunities are available to you. As a student, you may use your loan to cover everything from tuition to room and board, books, and living costs. Here’s a quick rundown of the process of taking out a new loan:
That’s a basic breakdown of how student loans work, although the details depend on the loan you take out (e.g., federal versus private). The next section discusses the difference.
There are two main categories of student loans: federal student loans and private student loans. Federal student loans are issued by the U.S. government. There are three main types. Direct Subsidized Loans are usually for undergraduates who demonstrate financial need. Direct Unsubsidized Loans can be for undergraduate or graduate students and don’t require that you demonstrate financial need. Finally, there are Direct PLUS Loans. These can be taken out by the parents of dependent graduate students or by graduate students themselves. Private student loans might be issued by credit unions, state agencies, banks, financial institutions, or schools. Here’s how they’re different:
In short, federal student loan options tend to offer more flexibility. You should always check your federal student loan options before exploring private student loans.
When shopping around for student loans, you will compare points like payment terms and loan rates. It’s also important to consider your financial consumer profile when applying for loans, as not everyone can get a loan. Lenders will review key details about the borrower (e.g., debt-to-income ratio) to determine eligibility. Below, we detail some of the most common qualifications that lenders look at.
Your credit score is a number from 300 to 850 that tells lenders how likely you are to pay back the money you owe on time. This figure is based on your financial history and takes into account everything from unpaid credit cards to whether you pay utility bills on time. The credit score model was established by the Fair Isaac Corporation and is called the FICO score. Here’s a quick rundown of credit scores:
If you have bad credit and don’t have a lot of money in your bank account to pay back outstanding debts, there are steps you can take to improve your FICO score. Read our guide on credit requirements and how to improve bad credit here.
Your payment history for loans and credit cards is one significant factor impacting your credit score. Since a credit score is based on a cumulative history, younger people tend not to have a great score. This isn’t because you’ve done anything wrong; it’s just that there’s limited or no data available to demonstrate to banks that you might be a reliable borrower. Better credit equals more competitive rates. To find out where you stand, you can get a free copy of your credit report. The Federal Trade Commission’s (FTC) Fair Credit Reporting Act (FCRA) protects your right to obtain one free copy of your credit report once per year through AnnualCreditReport.com. You can get one copy from each of the three main credit bureaus: Experian, TransUnion, and Equifax. However, due to the coronavirus pandemic, the major credit bureaus are offering free weekly reports until April 2021.
In addition to your creditworthiness, your income is also a factor to consider when choosing, qualifying, and applying for a student loan. Having a steady stream of income increases the likelihood that you will be able to make the monthly payments required on the life of the loan. Remember, barring some federal student loans, most lenders require you to start paying at least part of your principal and interest while studying.
Above, we talked about the factors that will allow you to qualify for a student loan. As mentioned, your unique needs and profile as a financial consumer will help determine which loan option is best for you. Factors to consider when assessing a loan company include interest rates (fixed interest rates versus variable interest rates), terms, and flexibility of repayment options. Below, we break down some of the options you have when choosing a lender.
Sallie Mae offers private student loans designed to cover diverse needs. Variable rate annual percentage rates (APRs) range from 1.25% to 11.35%, while fixed rate APRs range from 4.25% to 12.59%. Repayment terms range from five to 15 years. Here are some of the highlights:
Who does this loan make the most sense for? If you have a co-signer. Students are almost four times more likely to get approved for a Sallie Mae loan with a co-signer (like a parent). This will also help you get a better rate.
College Ave provides variable rate APRs of 1.04% to 11.98% and fixed rate APRs of 3.34% to 12.99%. Repayment terms likewise range from five to 15 years. Here are some of the highlights:
Who does this loan make the most sense for? If you value simplicity. Sign up to auto-debit payments and you’ll save money and won’t have to even think about your loan payments, allowing you to focus on your studies.
Earnest offers variable rate APRs from 1.05% to 11.44% and fixed rate APRs from 3.49% to 12.78%. You can customize the monthly repayment and length of the loan. Here are some of the highlights:
Who does this loan make the most sense for? If you have an uncertain financial future. If you don’t have a steady income stream lined up yet and aren’t sure what your plans are after school, it’s great to have liberties like a nine-month grace period and skipping one payment per year.
Custom Choice offers variable rate APRs from 1.03% to 9.53% and fixed rate APRs from 3.99% to 10.56%. They offer flexible loan terms of seven, 10, or 15 years. Here are some of the highlights:
Who does this loan make the most sense for? If you have a clear-cut career path after school. If you have a low credit rate now, you can have a parent co-sign the loan. Once you get your own income stream, you can easily release your parent as a co-signer.
Union Federal offers fixed rate APRs from 3.99% to 10.56% and variable rate APRs from 1.03% to 9.53%. Terms range from seven to 15 years. Here are some of the highlights:
Who does this loan make the most sense for? If you’re an international student. Not all loans are open to non-U.S. residents. Union Federal does accept applications from international students, provided they have a co-signer.
CommonBond offers variable rate APRs of 3.81% to 9.37% and fixed rate APRs of 3.74% to 10.74%. Terms are five, 10, or 15 years. Here are some of the highlights:
Who does this loan make the most sense for? If you don’t have a clue about finances. CommonBond stands out for its “Money Mentor” service, which can help you get a handle on your student loans and finances in general. Keep in mind that you’ll need a good credit score (a minimum credit score of 660) to qualify.
Ascent provides a fixed APR of 3.38% to 14.50% and variable APR of 2.44% to 12.96%. Terms range from five to 15 years. Here are some of the highlights:
Who does this loan make the most sense for? Ifyou don’t have a credit history. As mentioned, young people generally have limited or no credit history. Ascent will still provide you with a student loan even without this information.
Funding U offers fixed rate APRs of 7.99% to 13.49%. No variable rate APRs are available. Here are some of the highlights:
Who does this loan make the most sense for? DACA students can qualify for this loan. Funding U doesn’t ask for a co-signer, which can benefit students whose parents are not U.S. citizens.
LendKey offers fixed rate APRs of 2.95% to 7.63% and variable rate APRs of 1.91% to 5.25% with autopay. Terms can be up to 15 or even 20 years. Here are some of the highlights:
Who does this loan make the most sense for? If you don’t need more than $125,000. LendKey has a maximum loan amount of $125,000, making this smaller lender ideal if you don’t need more than that amount. There is also a minimum loan amount of $5,000.
SoFi offers Undergraduate variable rate *APRs of 4.39% to 15.99% (with autopay) and fixed rate APRs of 3.29% to 15.99% (with autopay). Terms available include five, 7, 10, and 15 years. Here are some of the highlights:
Who does this loan make the most sense for? If you are working your way through school and can start paying immediately. Deferred payment options are limited to graduate students and military service members. You only get the grace period for deferred payment plans.
CollegeFinance.com Can Help You Find the Best Loan Company for You Every borrower’s needs are different. The best personal loan for you won’t necessarily be the best one for your friend. Set aside a business day to review various personal loan lenders, factoring in both the loan and your personal profile as a financial consumer. Always read the fine print, including any disclaimers, FAQ, and online lender reviews. With some effort, you will find the funding option that is right for you. It doesn’t have to be difficult. It just takes some time. CollegeFinance.com is dedicated to giving students the information they need to make smart choices about education funding. Our resources cover everything from debt consolidation to refinancing student loans, dealing with credit card debt, handling payments amid COVID-19, and more.