Five Things Your Lender Doesn't Want You To Know About Your Private Student Loan
Think you know your private student loan? Think again. Banks have reason to keep borrowers in the dark about certain things—because if you don’t notice, you won’t realize you could be saving money and paying your loan off faster. Here are a few things your bank may not tell you—that you should be aware of.
Your payment may not be going toward the principal
Many banks apply your payments to interest before principal. And some banks set the bare minimum payment to a point where only interest is covered. This means that if you’re making a small payment, you may be paying and paying every month without making an impact on your balance at all—keeping you on a treadmill of debt. Always be sure you know how much of your payments are going to the principal balance vs. the interest.
That bigger payment may not lower your principal
Private student loan debt is usually the worst type of student debt you can carry. Take out as little as you can—always exhaust your federal loan options first—and pay it off the fastest after you graduate.
You may be able to get a rate reduction for automatic payments
Some banks will reduce your payment by 0.25% or so if you set up an automatic payment plan. It might not sound like much, but over time, it could save you a lot of money. If your bank hasn’t told you specifically about this option—and they may not feel the need to tell you how you can save money with them—be sure to ask about it.
The loan your college offers isn’t your only option
Your college may offer you a preferred private lender list to cover the gap between their own aid, your federal aid, and the tuition they charge. Most people go with one of the banks on this list—often the first one. But that’s not your only option. You can and should shop around for a private loan. Indeed, you can’t afford not to—not for such a large loan that will make such a big impact on your life after college.
You should always pay back your private loan first
If you have any discretionary income to apply toward your student loans, you should always apply it first to private loans—don’t spread it around across all your loans. It’s highly likely your private loans have higher interest rates and worse payment terms than your federal loans do—making them more expensive to carry long-term.
Private student loan debt is usually the worst type of student debt you can carry. Take out as little as you can—always exhaust your federal loan options first—and pay it off the fastest after you graduate. Your federal student loans will likely have a lower interest rate and be less vulnerable to interest rate variations over time. In addition, be aware of the fine print on your loans—and get in touch with your lender to ask for ways to save money and speed up the repayment process. Sometimes banks won’t tell you about certain options unless you ask.
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