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Last week, the average 10-year fixed-rate private student loan interest rate declined. This drop in rates is good news for borrowers interested in securing private student loans to fill a gap in college funding.
According to Credible.com, from October 4 to 8, the average fixed interest rate on a 10-year private student loan was 6.00%. It was 3.14% on a five-year variable rate loan. This is for borrowers with a credit score of 720 or higher who have prequalified on Credible.com’s student loan market.
Related: Best private student loans
Fixed rate loans
The average fixed rate on 10-year private student loans fell last week from 0.18% to 6.00%. The previous week the average was 6.18%.
Borrowers looking for a private student loan can now benefit from a lower rate than they would have at this time last year. At the same time last year, the average fixed rate on a 10-year loan was 6.71%, 0.71% higher than the current rate.
A borrower who finances $ 20,000 in private student loans at the current average fixed rate would pay about $ 222 per month and about $ 6,645 in total interest over 10 years, according to the Forbes Advisor student loan calculator.
Variable rate loans
Average variable rates on five-year loans fell 0.22% last week to 3.14%.
Unlike fixed rates, variable interest rates fluctuate over the life of the loan. Variable rates can start off 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.
Financing a private loan of $ 20,000 over five years at 3.14% would give a monthly payment of approximately $ 361. A borrower would pay $ 1,637 in total interest over the life of the loan. But the rate in this example is variable, and it may go up or down every month.
Related: How to get a private student loan
How your interest rate is determined
Lenders offering private student loans generally offer fixed and variable interest rates. These rates are, in part, based on your creditworthiness. Generally, the higher your credit score, the lower the interest rate you will receive. But credit history, income, the degree you’re working on, and your career can all factor into the interest rate you receive.
How to get a private student loan
Private student loans can be a decent option if you meet the annual borrowing limits for federal student loans or if you don’t qualify. You should consider a federal student loan as your first option, as interest rates are generally lower and you will have more liberal repayment and forgiveness options than with a private loan. For example, the federal undergraduate student loan interest rate is 3.73% for the 2021-2022 school year.
Obtaining a private student loan usually involves applying directly to a non-federal lender, such as a bank, credit union, or online entity. You can also get a private student loan through a non-profit organization, government agency, or college.
If you are an undergraduate student with a limited credit history, you will usually need to apply with a co-signer who can meet the lender’s borrowing requirements.
Here is 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 of around 600. This is why having a co-signer can be particularly beneficial.
- Apply directly to lenders. You can apply directly on the lender’s website, by mail or by phone.
- Compare your options. See what each lender is offering 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 discharge so that the co-borrower can potentially opt out of the loan.
Buy private student loans
When shopping for a private loan, consider the overall cost of the loan, including the interest rate and fees. You can also consider the type of help that each lender offers if you are unable to make your loan repayments.
If you have good or excellent credit, you have a better chance of getting the best interest rates.
How much should I borrow? Experts generally recommend that you borrow no more than what 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 looking for a loan, find out from lenders how the loan is disbursed and what costs it will cover.