October 10, 2022 — Lending Rates Fall – Forbes Advisor

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Private 10-year fixed-rate student loan rates fell last week. Despite the rise, if you want to get a private student loan, you can still get a relatively low rate.

From October 3 to 8, the average fixed interest rate on a 10-year private student loan was 6.37% for borrowers with a credit score of 720 or higher who prequalified in the student loan market. Credible.com. On a five-year variable-rate loan, the average interest rate was 7.97% among the same population, according to Credible.com.

Related: Best Private Student Loans

Fixed rate loans

Last week, the average 10-year fixed rate fell 0.69% to 6.37%. The previous week, the average was 7.06%.

Borrowers looking for a private student loan can now qualify for a higher 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 6.00%, or 0.37% lower than the current rate.

Let’s say you funded $20,000 in student loans at today’s average fixed rate. You’d pay about $226 a month and about $7,093 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.

Variable rate loans

Last week, five-year variable student loan rates rose to 7.97% from 6.77% the previous week.

Unlike fixed rates, variable interest rates fluctuate over the term of the loan. Variable rates can start 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.

Let’s say you financed a loan of $20,000 over five years with a variable interest rate of 7.97%. You would pay around $405 on average per month. You would pay approximately $4,314 in total interest over the life of the loan. Keep in mind that since interest is variable, it can fluctuate up or down from month to month.

Related: How to get a private student loan

Comparison of 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.

How much should you borrow? Experts generally recommend not borrowing more than 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 shopping for a loan, let lenders know how the loan is disbursed and what costs it will cover.

Get a private student loan

If you reach the annual borrowing limits for federal student loans or don’t qualify, private student loans may be a good option. But consider a federal student loan as your first option since interest rates are generally lower. You will also benefit from more liberal repayment and forgiveness options with federal student loans.

When shopping for a private student loan, you will usually need to apply directly with a non-federal lender. This includes banks, credit unions, nonprofits, state agencies, colleges, and online entities.

It is important to note that you will need a qualified co-signer if you have a limited credit history, as undergraduate students often do.

Here’s 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 over 600. That’s why having a co-signer can be especially beneficial.
  • Apply directly through lenders. You can apply directly on the lender’s website, by mail or by phone.
  • Compare your options. Look at what each lender offers 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 release so that the co-borrower can potentially opt out of the loan.

How lenders determine your rate

The rate you receive varies depending on whether you get a fixed or variable loan. Rates are partly based on your creditworthiness – those with higher credit scores often get the lowest rates. But your rate is also based on other factors. Credit history, income, and even the degree you’re working on and your career can all play a role.

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