College Loans With A Bad Credit History And With No Cosigner Can Be Expensive

When you have no credit history or a bad credit history then getting a student loan may not be so easy. If however you are able to get somebody suitable to act as a cosigner and to guarantee the repayment of your loan then this will certainly help considerably in securing a loan.

Students usually have few if any credit cards, no not have car loans and very rarely have a home mortgage loan so that they simply have no credit history against which a lender can assess the risks in giving them a loan. Also, where a student has a credit history it is all too often relatively poor as, like a lot of us when we are young, they have made some irresponsible decisions and overstretched themselves so that they ran into problems meeting their repayment obligations.

Either way the absence of any credit history or a record of late payments and perhaps defaulting on loans will usually place a student in a high risk category as far as many lenders are concerned. As a consequence loan officers, which includes those taking decision on behalf of the Federal student loans programs, will generally process applications from such students with caution. A lot of times loan applications will be denied or, in borderline cases, loans may be approved but a higher interest rate will be fixed to offset the risk and to compensate for higher default rates.

One method of counteracting the lack of a credit history or a bad credit score is for students to have a cosigner on their application for a loan. In a lot of cases this will be a parent and loan officers will look at the parent’s credit history when deciding whether to grant a loan.

It is also it is the parent’s credit history which becomes the chief factor in determining the interest rate for the loan and parents with a good credit history will more often than not receive the best rates, while people with low credit scores will generally pay a high rate. The difference can appear to be small at first glance but can in fact add up to a considerable sum over the normal 10 year repayment period.

For instance, one popular program grants loans at an interest rate of 4% for borrowers with a superior credit history increasing to 6% for borrowers with a poorer but nonetheless acceptable record. This 2% variation might not seem like much but could represent more than $ 5,000 over the life of a normal loan.

It is not uncommon these days for students to require as much as $ 100,000 to finance an undergraduate education and, even if interest is paid from the beginning and is not accumulated, interest at the present Stafford loan rate of 6.8% is about $ 567 every month or $ 6,600 per year. Reducing the interest rate to 5%, which is the current rate for a Perkins loan, lowers these figures to $ 417 and $ 4,820 respectively.

It should also be born in mind that these figures assume that repayment starts immediately. It is however much more common for students to defer repayment until six months after leaving college which will increase these figures significantly.

Students who have a cosigner with a superior credit record will not only improve their chances of getting a loan in the first place, but can also reduce their total loan repayment very considerably.