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This article first appeared on the Credible blog.
If you’re looking for a student loan to help pay for the cost of your college education, federal direct loans generally offer the lowest interest rates.
Those with excellent credit, however, might be able to find lower rates with private student loans. Your financial information, including your credit history, can help you qualify for low-interest student loans.
If you’ve already exhausted your federal student loan options, here’s how to find low-interest student loans. With Credible, you can easily compare private student loan rates in minutes for free and without affecting your credit.
1. Have good credit
Once you’ve exhausted subsidized and unsubsidized federal student loans, it’s a good idea to consider private student loans. There are several factors in the interest rate, but one of the most important is your credit. A good credit score can mean the difference between getting approved.
Generally, a good to excellent credit score can qualify you for better interest rates, while bad credit can mean you qualify for higher rates. If you don’t know your credit score, you can access it for free through several popular apps.
Learn more: Compare credit score ranges
2. Focus on debt versus income
In addition to reviewing your credit, lenders also consider your existing debt. They will add up all your minimum monthly payments for existing debts against your income. Higher debt relative to your income indicates a risk that you may not be able to repay the new loan. A lower debt ratio indicates that you are in a good position to make regular payments. Typically, lenders look for a DTI of 50% or less – the lower the better.
If you are able to pay off your credit card or other loan balances at least one month before applying for your student loan, this will lower your minimum monthly payments on your credit report and improve your debt to income ratio. This could help you qualify for lower student loan rates. Make sure you don’t close these accounts though; it could actually hurt your credit score.
How to calculate your DTI: (Total monthly payments ÷ monthly income) x 100 = DTI
Keep Reading: Debt to Income Ratio
3. Get a co-signer
If you have bad credit or no credit, it may take longer than necessary to fix your credit or establish a good credit rating. In this case, you might do better with a co-signer. Co-signers can share their good credit score with you for a lower rate. However, they also take full responsibility for loan repayment.
Many students typically look to their parents to co-sign – in fact, over 90% of private student loans are co-signed. Grandparents and other family members might also consider co-signing.
Credible lets you compare different co-signers on your loan to help you see which co-signer will help you get the lowest rate.
Check out: How to get a co-signer
4. Choose a shorter repayment term
If you can afford a higher monthly payment, a shorter repayment term saves you money in several ways:
Save money with a lower interest rate: Long-term loans are considered riskier by lenders, so generally the longer the term, the higher the rate. With a shorter term, you can get a lower rate and pay less over the life of your loan.
Pay interest for a shorter period: With a shorter term, you will pay off your loan sooner. When your loan is paid off sooner, you stop paying interest.
Read more: APR vs interest rate: what’s the difference?
5. Look for discounts
Some student lenders are willing to give you a discount if you meet certain criteria or requirements. For example, many popular lenders give a 0.25% rebate when you sign up for automatic payments. But keep in mind that if you don’t pay off your loan while in school, this discount usually won’t apply and the higher interest rate will accrue.
Keep in mind: For a loan of $10,000 over 10 years with an interest rate of 5%, you would pay a total of $2,728 in interest. With a discount of 0.25%, you would pay $2,582 in total interest. That’s a savings of $146. Feed your own numbers into Credible’s Student Loan Interest Calculator to estimate how much you could save on your own loans.
Some lenders may have other unique discount programs to further reduce your rate, such as loyalty or good quality discounts. If you qualify, take advantage of them because they can really add up.
With Credible, you can easily compare private student loan rates without affecting your credit score.
Read more: Interest rates on student loans
6. Compare lenders
Federal student loan rates are set by the government, but private lenders can set their own student loan rates. Shopping around will help you find the right loan for your situation.
Credible helps you save time shopping by allowing you to compare offers from multiple lenders in one simple form.
Check Out: 8 Best Small Student Loans
Low interest student loans for parents
Parents looking to take out student loans to help fund their students’ education might first consider Parent PLUS Loans, but it’s not your only loan option. Parents with good credit scores might be able to find cheaper loans from private lenders than the PLUS program.
Parents may also be able to save on existing PLUS loans by refinancing a new loan with a lower interest rate. Be sure to note the origination fees on Parent PLUS loans which can significantly increase the APR of the loan, often by around a full percentage point.
Learn More: Parent PLUS Loans vs. Private Student Loans
Take charge of your student loan interest rates
It may seem like the government, banks, and other lenders are responsible for your student loan interest rates, but you have a lot of influence over whether you have low-interest student loans or you pay more.
By focusing on your credit and other aspects of your finances, you may be able to lower your existing loan rates or qualify for lower rates in the future.
Keep Reading: How to Get a Student Loan
About the Author: Eric Rosenberg is a personal finance expert. His work has been featured in Business Insider, Investopedia, The Balance, The Huffington Post, MSN Money, Yahoo Finance, Mint.com and more.
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