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Last week, the average interest rate on 10-year fixed-rate private student loans moved up. Overall, rates remain fairly low, making private student loan a worthwhile option for borrowers looking to make up a gap in college funding.
From October 10 to October 15, the average fixed interest rate on a 10-year private student loan was 7.39% for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace. On a five-year variable-rate loan, the average interest rate was 8.87% among the same population, according to Credible.com.
Related: Best Private Student Loans
The average fixed rate on 10-year loans last week increased by 1.02% to 7.39%. The week prior, the average stood at 6.37%.
Borrowers in the market for a private student loan now can receive a higher rate than they would have at this time last year. At this time last year, the average fixed rate on a 10-year loan was 5.41%, 1.98% lower than today’s rate.
If you were to finance $20,000 in student loans at today’s average fixed rate, you’d pay around $236 per month and approximately $8,351 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Average variable rates on five-year loans moved up last week, from 7.97% on average to 8.87%.
In contrast to fixed rates, variable interest rates fluctuate over the course of a loan term. Variable rates may start lower than fixed rates, especially during periods when rates are low overall, but they can rise over time.
Private lenders often offer borrowers the option to choose between fixed and variable interest rates. Fixed rates may be the safer bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it could be beneficial to choose a variable loan.
Let’s say you financed a $20,000 five-year loan with a variable interest rate of 8.87%. You’d pay about $414 on average per month. You’d pay approximately $4,834 in total interest over the life of the loan. Keep in mind that since the interest is variable, it could fluctuate up or down from month to month.
Related: How To Get A Private Student Loan
How Your Interest Rate Is Determined
Lenders offering private student loans generally offer both fixed and variable interest rates. These rates are, in part, based on your creditworthiness. Generally, the higher your credit score, the lower the interest rate you’ll receive. But credit history, income, the degree you’re working on and your career can factor into the interest rate you receive as well.
Getting a Private Student Loan
Before you look to a private student loan, consider a federal student loan as your first option. The interest rates on federal student loans are generally lower. Federal student loans also tend to have far more generous repayment and forgiveness options. Yet, if you’ve reached the borrowing limits for federal student loans or if you’re ineligible for them, private student loans can be a good solution.
To get a private student loan, you’ll generally need to apply directly through a non-federal lender. You can find private student loans through banks, credit unions and online entities. Nonprofit organizations, state agencies and colleges also offer loans.
It’s important to note that you’ll need a qualified co-signer if you have limited credit history, as undergraduates often do.
When applying for a private student loan, take into consideration the following:
- Your qualifications. Private student loans are credit-based. Lenders typically require a credit score in the higher 600s. This is where having a co-signer can be particularly beneficial.
- Where to apply. You can apply directly on the lender’s website, via mail or over the phone.
- Your options. Look at what each lender offers and compare the interest rate, term, future monthly payment, origination fee and late fee. Also, check to see if the lender offers a co-signer release so that the co-borrower can eventually come off of the loan.
How To Compare Private Student Loans
When comparing private student loan options, take a close look at the overall cost of the loan. This includes the interest rate and fees. It’s also important to consider the type of help the lender offers if you can’t afford your payments.
If you have good or excellent credit, you have a better chance at landing the best interest rates.
Experts generally recommend that you borrow no more than what you’ll earn in your first year out of college. While some lenders cap the amount of money you can borrow each year, others don’t. When comparing loans, figure out how the loan will be disbursed and what costs it covers.