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Interest rates on 10-year fixed-rate personal student loans fell last week. If you are interested in a private student loan, you can still get a relatively low rate despite the increase.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace August 8-13, the average fixed rate on a 10-year personal student loan was 6.97%. For a five-year adjustable rate loan, the interest rate was 4.97%, according to Credible.com.
Related: Best Private Student Loans
Fixed rate loan
The average fixed rate on 10-year personal student loans fell 0.07% to 6.97% last week. The week before, the average was 7.04%.
Borrowers in the personal student loan market can now get a higher rate than they did at this point last year. This time last year, the average fixed rate on a 10-year loan was 5.38%, 1.59% lower than today’s rate.
A borrower funding $20,000 in personal student loans at today’s average fixed rate would pay about $232 per month and about $7,829 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Loans with a variable interest rate
Last week, five-year variable student loan rates rose, hitting 4.97% from 4.87% the previous week.
In contrast to fixed interest rates, variable interest rates fluctuate over the course of a loan period. Floating rates can start out lower than fixed rates, particularly during periods when interest rates are overall low, but they can rise over time.
Private lenders often offer borrowers the option to choose between fixed and variable interest rates. Fixed rate may be the safer choice for the average student, but if your income is stable and you plan to pay off your loan quickly, it might be beneficial to choose an adjustable rate loan.
Suppose you funded a $20,000 loan with a five-year term and a 4.97% variable interest rate. You would pay around $377 per month on average. You would pay a total of about $2,629 in interest over the life of the loan. Keep in mind that because interest rates are variable, they can fluctuate up or down from month to month.
See also: How to get a personal student loan
Shopping for private student loans
First, take a look at the total cost of the loan. Consider both the interest rate and fees. Also, check out the type of help each lender offers when you can’t afford your payments.
If you have good or very good credit, you have a better chance of getting the best rates.
Experts generally recommend that you don’t borrow more than you earn in your freshman year. While some lenders limit the amount of money you can borrow each year, others don’t. When comparing loans, pay attention to how the loan is paid out and what costs it covers.
Get a private student loan
Before looking for a private student loan, the first option to consider is a government student loan. Interest rates on federal student loans are typically lower. Federal student loans also typically have far more generous repayment and forgiveness options. However, if you have reached or are not eligible for government student loan credit limits, private student loans can be a good solution.
Generally, if you are looking for a private student loan, you must apply directly through a non-state lender. These include banks, credit unions, nonprofits, government agencies, colleges, and online businesses.
Keep in mind that students with limited credit histories often need a co-signer who can meet the lender’s credit requirements.
Here are some things to keep in mind when applying for a private student loan:
- Make sure you qualify. Personal student loans are credit-based, and lenders typically require a credit score in the high 600s. For this reason, having a co-signer can be particularly beneficial.
- Apply directly through the lender. You can apply directly on the lender’s website, by email or by phone.
- Compare your options. Check out what each lender is offering and compare the interest rate, term, future monthly payment, setup fee, and late payment fee. Also, check if the lender offers a co-signer release so that the co-borrower can eventually exit the loan.
How your interest rate is determined
Lenders that offer private student loans typically offer both fixed and variable interest rates. These rates are based in part on your credit rating. In general, the better your credit score, the lower the interest rate you will get. But credit history, income, the degree you’re working on, and your career can also factor into the interest rate you get.