Private student loans are a funding tool for students who need to bridge the gap when federal direct loans do not cover the full cost of the university. But since interest rates are in part based on a borrower’s credit rating, rising students may not yet have established a good enough credit history to qualify for the lowest possible rates.
This is why the vast majority of undergraduates use a creditworthy co-signer when borrowing private student loans to pay for their education, according to a credible analysis of 2018. Borrowers with a co-signer are entitled to interest rates approximately 2.36 percentage points lower than those without a co-signer, which can translate into significant savings over the life of the loan.
Read on to find out how a co-signer can save you money on your private student loans. And if you are currently looking for student loans, you can compare student loan rates for free on Credible without affecting your credit score.
FIXED RATES FOR STUDENT LOANS, ESCAPE OF VARIABLE RATES
A Co-signer Can Save You Thousands Of Dollars With Lower Student Loan Rates
While direct undergraduate loans have the same fixed interest rates For all borrowers, private student loan interest rates vary depending on a number of factors, including:
- The borrower’s credit rating
- The loan amount
- The loan repayment period
- The type of loan (fixed rate or variable rate)
Aspiring students who do not have an established track record must rely on the help of a co-signer such as a parent or guardian if they are to qualify for low rate private student loans.
Borrowers with a credit score of less than 620 were able to reduce their rates by 4 percentage points on average by adding a co-signer, according to Credible’s analysis. Those with credit scores between 620 and 719 received a 3 point reduction in the interest rate.
Even creditworthy applicants with a credit score of 700 will see lower rates if they get a co-signer with better credit to sign the loan.
HOW TO PREPARE FOR THE FREE REQUEST FOR FEDERAL STUDENT ASSISTANCE
Over time, a lower rate can save student borrowers thousands of dollars. For example, a borrower with good credit who takes out a student loan of $ 20,000 over 10 years at a fixed rate of 7.95% could save more than $ 4,000 on the total interest paid if he could qualify for the loan. a rate of 4.44% with a co-signer of excellent credit.
See how much you could save by comparing the private student loan rates of several lenders on Credible. You can use a student loan repayment calculator to see how a lower interest rate can impact your repayment plan over time.
7 BEST LOANS FOR GRADUATE STUDENTS
How to find the right co-signer for your student loans
It’s more common for private student loan borrowers to need a co-signer than you might think. About 92% of undergraduate student loans are co-signed, according to Credible’s analysis.
About three-quarters of undergraduates who add a co-signer to their student loans get help from a parent. But parents may not be your only source of financial support. Here is the breakdown of private student loan co-signers in the Credible market:
- Parent: 72.5%
- Relative: 8.9%
- Spouse: 7.5%
- Friend: 3.1%
- Siblings: 2.7%
- Goalkeeper: 2.7%
- Employer: 0.2%
APPLYING FOR FAFSA IS TO BE MUCH EASIER
The most important thing to look for in a co-signer (besides trust) is the creditworthiness of the applicant. The higher their credit score, the lower your potential student loan rates will be.
Co-signing on a student loan is a significant financial commitment as a co-signer shares equal responsibility for repaying the loan. Your co-signer’s debt-to-income ratio will increase and their credit will be affected when you apply. And if you don’t repay the loan, your co-signer will also be negatively impacted.
When you ask a creditworthy candidate to co-sign your private student loans, remember that they are putting their personal credit on the line for the benefit of your studies.
Learn more about the eligibility criteria for co-signing a private student loan on Credible. You can get in touch with an experienced loan officer who can help you make the right decision about financing your education.
CONCERN ABOUT FORECLOS INCREASES AFTER ABSOLUTION ENDS
Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.