How to Shop for Private College Loans

Sunday, January 23, 2011

When shopping for private college loans, while it's tempting to choose one based on interest rates alone, it's best to compare them using the Annual Percentage Rate (APR). Unlike basic interest rates, which may not represent the true cost of the loan, the APR takes into account all associated loan costs such as finance charges and loan fees (except penalty charges such as late payment fees). The formula used for calculating the APR also takes into account deferment periods and repayment terms. Each of these factors can have a significant impact on the cost of a loan. The APR adjusts for each of these items, illustrating the true cost of borrowing for your education over the entire life of the loan.

Additionally, since most lenders don't tell you what your actual interest rate will be until after you submit your application and after they evaluate your credit history, APR examples help you understand the lowest and highest interest rates actually available. This gives you a good idea of what you can expect to pay under those two scenarios. Like most consumers, you can expect to receive a rate somewhere between the lowest and highest rates advertised. These examples also identify the index used and the published rate for that index.

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