Alternative Loan Sources Outside of the College of Charleston
An alternative (also called private) loan is a loan through a commercial lender. Only look for alternative loans after you have exhausted all potential scholarships, federal grants, work study funds, and federal loan programs (Perkins, Stafford, Parent PLUS, Graduate PLUS) via the FAFSA application process.
While alternative loans might be the difference between attending college or not, alternative loans generally have higher interest rates than federal loan programs and eligibility is based on your creditworthiness, not financial need. We have highlighted some key steps in the alternative loan application process below, but for a thorough explanation of the application process and helpful Q&A, you may also want to take a look at the publication SLA Guide to Alternative Loans.
- Collect all the information that you need prior to starting the application process. Most lender applications require information on the borrower (the student), a co-borrower (also referred to as a co-signer) and several references.
- Identify a co-borrower (also called a co-signer) that will strengthen your application. A co-borrower guarantees the loan taken out by the student borrower. A co-borrower can be a parent, a grandparent, a relative or any individual willing to take on that responsibility. You will want to ensure that they have good credit, as their credit status will play a significant role in the pricing of your loan. Given the current “credit crunch”, having a creditworthy co-borrower can be critical to getting your loan approved.
- Plan on applying for up to 2 - 4 loans. Research indicates that applying for too many loans can have a negative impact on your credit score. The tradeoff is that by not applying for more than one loan you may be missing an opportunity to save on your loan. Recent research on just three lenders found interest rates ranged from 9.0% to 12.4% while fees ranged from 0% to 9% for a good credit borrower.
It pays to compare! Because private loan providers offer variable rates and special incentives, do your homework and find the lender that best suites your needs. And be wary of comparing loans with different repayment terms according to APR, as a longer loan term reduces the APR despite increasing the total amount of interest paid.
- Understanding the interest rate index tied to the loan (i.e., what is LIBOR & Prime?) Interest rates on alternative loans are typically priced off an index, such as the Prime Rate or LIBOR index (one or three month LIBOR are common). The loan is then priced as a margin over that index (e.g., 1 month LIBOR + 6%). The current rates on these indices may be found @ Bankrate.com.
Please note that lenders update their indices on a regular basis (typically monthly or quarterly) so the rates listed above may not match the actual rates charged by lenders. Ask the lender what its Current Index is which will answer this question.
Other resourceful websites that may assist you in obtaining an alternative loan include FinAid's Loan Discount Analyzer; a website used to generate an apples-to-apples comparison of different loan programs. And the Private Student Loan Comparison Chart; a website that provides a basic comparison chart that highlights the key characteristics of the major private education loan
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