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College Loans With No Credit Score And With No Cosigner Can Be Expensive
If you have no credit history or a poor credit score then getting a college loan might not be simple. But, if you can get a suitable person to agree to be a cosigner and guarantee the repayment of your loan then this can certainly help you to get a loan.
Students often have few if any credit cards, no car loans and very rarely have a home mortgage loan so that they simply have no credit history against which to assess the risk in giving them a loan. And, where students have a credit history it is all too often relatively poor because, as with many of us when we are young, they have made some irresponsible decisions and overreached themselves so that they ran into difficulties making their repayments.
In either case the absence of any credit history or problems with late payments and perhaps defaulting on loans will frequently put a student into a high risk category so far as the majority of lenders are concerned. As a consequence loan officers, including those taking decision on behalf of the Federal student loans programs, will frequently process applications from such students with care. In many cases loan applications will be turned down or, in some cases, loans will be approved but a high interest rate will be fixed to make up for the risk and as compensation for increased default rates.
One method of counteracting the absence of any credit history or a bad credit score is for students to have a cosigner for their loan application. In many cases this will be one of the student's parents and loan officers will look then at the credit history of the parent when deciding whether to grant a loan.
At the same time the parent's credit history becomes the main factor in fixing the interest rate to be charged and those with a good credit history
will more often than not receive the best rates, whilst those with lower credit scores will frequently pay a high rate. The difference can seem to be small at first glance but can actually add up to a considerable sum over the normal 10 year loan repayment period.
For example, one popular loan program offers loans at an interest rate of 4% for borrowers with a good credit score increasing to 6% for borrowers with a poorer but still satisfactory record. The variation of 2% may not seem like much but could represent in excess of $5,000 over the life of a loan.
It is not at all unusual today for students to require as much as $100,000 to finance an undergraduate education and, even if interest is paid from the beginning rather than being rolled up, interest at the present Stafford loan rate of 6.8% is almost $567 per month or $6,600 each year. Lowering the interest rate to 5%, which is the current rate for a Perkins loan, reduces these figures to $417 and $4,820 respectively.
It should also be born in mind that these numbers assume that repayment starts straight away. However, it is far more usual for students to defer repayment until six months after college and this is going to increase these numbers significantly.
Borrowers with a cosigner who has a superior credit record can not only improve their chances of obtaining a loan in the first place, but they can also reduce their total loan repayment greatly.
TheStudentLoansCenter.com provides information on a range of topics including student loans with no cosigner and bad credit alternative student loans
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