Imagine you are about to start your university career. You just finished high school and can’t wait to look forward to the future. However, there is a common issue among most American students – how will I pay for my college career? Yes, education is expensive in our country, but more importantly, education is necessary. It’s the best tool we can have to build the life we truly want. This is when student loans come into the scene.
Generally speaking, a student loan is the main way to borrow money so you can finance your college career. Private student loans are just another method in which a private lender gives you money that you need to return over a certain period of time – of course, paying the interest that was built. Of course, there are a lot of controversial terms regarding student loans, but this mostly happens due to the lack of understanding about this borrowed money.
So, if you are about to get a student loan and you want to be prepared for it, we will clarify all the information you certainly need to know. More than 45 million Americans already have government student loans or private loans, so what can we learn from them?
This is how student loans work
The first thing that you should definitely know about these loans is that the borrowed money you will pay will have an important student loan interest rate in it. According to some people, this is one of the most deceiving things about student loans. This creates the need to comprehend how much money will be added to the final amount that you need to pay.
There are three important factors that will determine the total amount of your loan: the amount of money borrowed, the term of the agreement, and, of course, the interest rate. That means that if you acquire a loan for a 10 years term with a 3% interest rate, you should be able to determine the total cost of the loan. So, based on this, it shouldn’t be difficult to know the final amount if you use a student loan calculator or another tool to help you with this subject.
However, it doesn’t end here. Every time you take a break from paying your loan, the total cost will increase. This happens with late fees and with skipped payments too. Naturally, the best way to avoid this would be to always pay on time, but we know this is not possible for everybody.
Types of student loans
Although there are two main types of student loans, we must say that, in theory, they are extremely similar to each other. Federal student loans, also known as government loans, are issued by the government. There’s the possibility to obtain a subsidized loan from the government if our personal profile can show the financial need for it. This type of loan will cover the interest rate until the moment to pay back the loan arrives.
If you can’t prove your financial need (or if you just don’t have one), you can apply for an unsubsidized loan, which is basically the same but without covering the interest rate. Finally, the Direct PLUS loan is a type of loan that parents can take for their dependent or that a student can take for themselves.
On the other hand, private student loans are normally more expensive than government loans. These loans are issued by private sources like schools, state agencies, or banks. Also, the interest is way higher in private loans than in government loans, so be sure to check them before proceeding with one.
The drama of student loan debt
It is impossible to hide the student loan crisis that is happening in our country at this very moment. Education has become totally necessary in order to have a nice life, which has led to an increase in the number of Americans applying for student loans. In fact, student loan debt has become significantly higher than credit card debt in our country.
Usually, the average debt at the time of graduation is at least 35,000 USD, definitely a high amount for a freshman professional. Nonetheless, there are some tools that we can use to avoid having these problems. It is possible to pay off your fees sooner, which will significantly reduce your interest rates.
But if you are looking for a form of debt consolidation, then refinancing it’s the best way to do it. Refinancing a loan is a tricky procedure that needs to be carefully analyzed under your specific needs before proceeding with it. With that being said, extending the duration of your loan might be a good way to catch some air, but this will probably increase the interest rate and you will pay more money in the long run.
You can also apply for student loan forgiveness, but almost no one qualifies for it. This can be proven if we look at the official data from the government that says only 1.3% of applications for loan forgiveness were approved. Definitely, student loans are made to help our professional careers to start, but we should always be financially educated to prevent unfortunate scenarios from happening.
Step 4 - Pick your lender, apply and provide the necessary documentation
Once you understand everything you need regarding the process of getting a personal loan, is time to take action. Most lenders usually will allow you to do your application process online, which will save you a lot of your precious time. You’ll need to fill the application with all the information required by the lender. Remember to share how much money you need to borrow so your process can be studied individually.
Some documents are extremely important to perform the application, such as your proof of residence, driver’s license, proof of income, and personal identification. However, these requirements can vary from lender to lender, so if they need anything else, they’ll let you know.
Finally, you need to wait if your loan was approved or not. Keep in mind that the faster you provide all the information needed, the sooner you will get the final decision.
The interest rate of your personal loan will be directly affected by factors like your credit score and the loan term. Once they announce the approval of your loan, sign all the papers and enjoy your money.
Personal loans are a great way to improve your financial situation if you understand how to use them right. Flash Financial Guide is here to help you with everything you need regarding the loan process, so if you have any doubt don’t hesitate to contact us.
