Landing on this page means you want to know about the benefits of privately issued loans. If that’s correct, then you’re on the right page.
Do you remember the days of getting a student loan from the bank and using it as your primary source for paying for college? If so, you’ll probably also remember being impressed with how much you could save if you took out a private student loan instead.
Private student loans have a lot more benefits than their more widely-known alternative, the government-issued student loan. Private loans are issued by banks, credit unions, and other financial institutions that are willing to take on a little bit of risk to make some money in return.
Similar to how a mortgage isn’t technically free but rather has hidden costs like interest or down payment, there are costs associated with taking out a private student loan.
However, due to the risks involved, they come at much lower rates compared to federal loans.
If you’re a student or graduate looking for an alternative to the much-maligned federal loans, then you’ll want to consider taking out a private student loan.
What should You know about private student loans?
Private loans are typically issued to students or recent graduates with no credit history. They are available at a much lower interest rate than federal loans, and most banks and credit unions will offer the same rate for all applicants regardless of financial history.
When you take out a private loan, two main things should be considered: repayment terms and interest rates.
The repayment terms of each loan vary depending on the amount borrowed and the length of time in which it is given. Most banks will also require you to have some form of cosigner if your credit isn’t good enough to obtain the loan on your own.
If someone else cosigns for you, they will be legally responsible for paying off any debts you incur if you fail to repay them. This is known as cosigner release, which allows the person who took out the loan (the original borrower) to become solely responsible for their debt after meeting certain criteria (i.e., making regular payments).
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How Does A Privately Issued Student Loan Differ From A Government-Issued One?
The biggest difference between the two is that a privately issued student loan comes with a set interest rate, while a government-issued loan comes with an interest rate that changes based on market conditions.
On top of the fact that you know exactly how much you’ll be paying in interest for the life of the loan, you can also expect a more streamlined process of applying for and receiving your loan.
Government-issued loans are notorious for long application processes that involve filling out many pages of paperwork. While private lenders have their fair share of paperwork as well, it’s generally much shorter and less involved.
You may have heard horror stories about students who took out government-issued loans and then either couldn’t get a job or had their degree devalued, resulting in them being unable to find gainful employment.
But with privately issued loans, the terms of the loan are more specific and straightforward. This means you avoid situations where a change in the economy leaves you unable to pay off your student loan.
Which Comes With The Highest Benefit: Government Or Privately Issued Loan?
This is perhaps the most important question that you should be asking yourself. The answer to this question will depend on many different factors, but the two most important ones are your credit score and the annual percentage rate of the loan.
If you have a good credit score, you’ll likely be able to secure a lower annual percentage rate (APR) with a privately issued loan.
This has nothing to do with the government and is simply dependent on the lender’s risk assessment. The government will assess your credit score as well, but even if you have bad credit, you may still be able to get a lower APR on a government-issued loan.
How To Get A Privately-Issued Student Loan
You can get a privately issued student loan by applying directly to a financial institution. The process maybe takes you a little longer than applying for a government-issued loan, but it’s certainly worth it in the end.
While the application process for a government-issued loan is streamlined and mostly online, you’ll likely have to fill out some paperwork for a privately issued loan.
It’s a pain, but it’s worth it in the end. You may have to go to your bank in person or schedule an appointment with a lender online to drop off your application. The best way to get a head start on the process is to get pre-approved for a loan.
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Lower Interest Rates
If you have good credit, you may be able to secure a loan at a rate lower than the government-issued loan. This is because you are taking a much larger risk by loaning money to an individual compared to loaning money to the government.
As such, you are compensated with a lower interest rate compared to a government-issued loan. There are also other ways to reduce your interest rate, such as putting down a larger down payment or cosigning with a family member.
However, keep in mind that cosigning a loan means you are responsible for paying it back if the primary borrower is unable to do so.
No Need For Good Grades
It’s not uncommon for students to be denied access to a government-issued loan because of low grades. Whether it’s an F on a course or bad marks in a cumulative GPA, a poor academic record could keep you from obtaining the funds you need for college.
If you have a poor GPA, there’s a good chance you’ll have a better chance of securing a privately issued loan. You’ll have to prove that you can pay it back, but you have a better chance of getting approved and receiving the funds you need.
If your grades are bad and you’re worried about getting a government-issued loan, a privately issued loan might be your best bet.
You can choose almost any repayment option with a government-issued loan. The standard repayment term is ten years, but you can also choose an extended repayment term of up to 25 years.
If you have a lower income, you may be able to qualify for an income-driven repayment plan. With privately issued loans, there are no standard options for repayment.
You can choose a payment plan that’s best for you, whether that’s a shorter repayment term or an extended one. Regardless of your income level, you can choose an option that works best for you.
No Risk Of Default
Federal student loans come with a very high level of student loan forgiveness if you ever go into default. However, private student loans come with a very different level of default protection.
If you’re unable to repay your loan and it gets sent to collections, a government-issued loan may be completely wiped away. However, with a privately issued loan, you’ll end up paying a much higher interest rate on the remaining balance.
If you’re forced to default on your loan, a private lender will still come after you. However, they’ll come after the assets that you have rather than your future earnings. This is a much less preferable option than having the government come after you for their money.
Protection For Cosigners
If you’re a student who has a cosigner on a government-issued loan, you likely have someone you love and care about who is very worried about whether you can make your payments.
If your grades are good enough, but you don’t qualify for a government-issued loan, a cosigner can be a great option for obtaining a loan.
However, if you have a low GPA and need to take out a government-issued loan to get by, your cosigner may be worried about how they’ll be able to pay off the loan if you’re unable to make your payments.
A privately issued loan offers your cosigner a little more protection against the risk of default. The lender will come after you first, and your cosigner will be left with nothing.
A privately issued loan is the way to go if you’re a student who needs funding for school. A government-issued loan is a good option if you have very good grades and little to no credit.
The best way to get a privately issued loan is to start early by researching your options and visiting different lenders. If you’re a student who needs a private student loan, you can rest easy knowing that you’ll get a fair deal and the funds you need to finish your degree. Check out the list of registered lenders in Ireland.