Determining Student Loan Interest Rates

If you are trying to understand student loan interest rates and determine which rate you may be eligible for, you need to be aware that there are many variables figured into the equation. Not only can interest rates change in the blink of an eye, the factors that determine them can as well.

Loan Type

One of the primary elements influencing student loan interest rates is whether you are applying for a new loan or extending one you already have. If you have already deferred payments on an existing loan, the lender really has no payment history to evaluate. In this case you are deemed a high-risk borrower and your interest rate may be higher.

On the other hand, if you have made some payments but need to refinance the loan for an extended period of time so your payments are more budget-friendly, you may receive a lower interest rate if you have proven yourself to be a responsible.

Credit Report

When it comes to student loan interest rates, quite often, no credit is better than bad credit. Although neither will receive extremely favorable rates, with bad credit, you are immediately labeled as a high-risk borrower.

Lenders look at previous loans, credit cards and even utility bills that report to credit bureaus when determining interest rates. If you have made all of your payments on time, you become very attractive in the eyes of a lender. If you have a lot of late payments or items charged off, you may need a co-signer and even then, your interest rate will likely be higher.

 

 

Employment

Sometimes employment plays a key role in determining student loan interest rates, other time it doesn’t. If you have good credit or already have built a relationship with the lender by making payments on time, your employment may not even be evaluated.

If you have no credit or bad credit, employment will generally be important in determining your interest rate because it will show your ability to repay the loan. Your salary, position and time on the job will all often play their own little part in making a decision.

There are some circumstances where you may be required to have a co-signer. At other times, you may not have to have a co-signer but adding on a strong one could get you a significantly lower interest rate. There are typically a lot of lenders competing for your business so don’t jump on the first loan or interest rate that sounds good. Do your homework, perform comparisons and make sure that you fully understand all terms before signing any contracts.