How to get the best alternative loan
What is the best alternative loan? For most students the “best” loan is the one that costs them the least amount of money. In addition, you probably want to have convenient product features that make repaying your alternative loans easier.
Step 1: Research alternative loan lenders & products
The first step to getting the best alternative loan is to do the research and find the product that makes sense for you. Here are some important questions to answer when looking at an alternative loan product:
- What repayment plans do you offer?
- Are payments required in-school or not until I graduate?
- What is the range of fees and interest rates I can expect?
- Do you offer a co-signer release program?
If you don’t know what these questions mean, make sure you read about the basics of alternative student loans before you start looking at lenders that offer these loans.
Step 2: Find a credit-worthy co-signer
Unless you have sufficient income and a good credit history, chances are you will not qualify for an alternative loan without a co-signer. A co-signer can be anyone over 18 who is willing to share the responsibility of the loan with you. We’ve put together some helpful information on finding an alternative student loan co-signer.
A co-signer not only helps you get approved for the loan, they can also lower your interest rates and fees, and increase the amount you can borrow. In summary: the better the co-signer, the more you can borrow to help cover your cost of education and the less you’ll pay.
Step 3: Getting the lowest interest rate and fees
Now that you have 1) selected a lender that has the alternative loan product you want and 2) found someone who is willing to co-sign the loan for you, it’s time to apply. After you complete the application process with your co-signer, and are approved, you will be given your loan terms.
Review the loan terms carefully. The two most obvious things you will want to look at are the interest rate and fees being charged. Remember that alternative loan rates are most likely variable and will likely be calculated based on the Prime Rate or LIBOR plus a margin.
Even though rates are low today, they will fluctuate during the time that you repay your student loans. For example, if the Prime Rate is at 2% today and your margin is Prime + 5%, your rate today is 7%. If the Prime Rate goes up to 6%, your rate will increase to 11%. Make sure that you can afford your student loan payments at either possible scenario.
If the interest rate and fees on your loan are too high, you and your co-signer can try applying with another lender, or you can try applying with another co-signer.
Remember that each time you apply for an alternative loan, your credit will be run and an inquiry will show up on your credit report. Make sure you read as much as you can about alternative loan approval and before you start the application process. Good luck finding the best alternative loan!