[Student Loans Without Cosigner] A Student Loan With A Poor Credit Score And Without A Cosigner Can Be Expensive

November 3, 2011 – 4:45 pm

Article by Donald Saunders

If you have no credit history or a poor or bad credit history then finding a college loan may be difficult. If however you are able to get somebody suitable to agree to be a cosigner and guarantee your loan repayment then this can certainly help you to secure a loan.

students often have few if any credit cards, no not have car loans and very rarely have a home loan so that they have little or no credit history against which a lender can assess the risks in granted them a loan. In addition, in those cases where students do have a credit history it is all too often relatively poor because, like many of us when we are young, they have made some irresponsible decisions and overreached themselves so that they ran into problems meeting their repayments.

In either case the absence of any credit history or a record of late payments and perhaps defaulting on loans will often place a student in a high risk category so far as most lenders are concerned. This means that loan officers, which includes those taking decision on behalf of the government’s Federal Student Loans programs, will generally process applications from students in this situation with care. In many cases loan applications will be turned down or, in some instances, loans will be granted but a high interest rate will be applied to counterbalance the risk and to compensate for increased default rates.

One way to counteract the absence of any credit history or a poor credit score is for students to use a cosigner for their loan application. In the majority of cases this will be a parent and loan officers will look then at the parent’s credit history when deciding whether to grant a loan.

In these circumstances it is the parent’s credit history which becomes the main factor in deciding the interest rate for the loan and those with a good credit history will characteristically receive the best rates, while those with lower credit scores will usually pay a high rate. This difference may appear small at first sight but can actually add up to a significant sum over the normal 10 year loan repayment period.

As an example, one popular cosigner loan program offers loans at 4% for borrowers with a superior credit history rising to 6% for those with a poorer but nonetheless acceptable record. This 2% difference may not seem like much but could represent in excess of $ 5,000 over the life of a normal loan.

It is not uncommon today for a student to need as much as $ 100,000 to finance an undergraduate education and, even where interest is paid from the outset and is not rolled up, interest at the present Stafford loan rate of 6.8% is close to $ 567 every month or $ 6,600 every year. Reducing the interest rate to 5%, which is the present rate for a need-based Perkins loan, lowers these figures to $ 417 and $ 4,820.

It also has to be remembered that these numbers assume that repayment starts immediately. However, it is far more usual for repayment to be deferred until six months after college and this will increase these numbers significantly.

Borrowers who use a cosigner with a good credit record can not only increase their chances of being granted a loan in the first place, but they can also lower their total loan repayment significantly.


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