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The average interest rate on 10-year fixed-rate private student loans slipped last week. For many borrowers, that means rates continue to be low enough to make private student loans a decent option, especially if you have good credit.
From July 4 to July 8, the average fixed interest rate on a 10-year private student loan was 6.38% 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 3.96% among the same population, according to Credible.com.
Related: Best Private Student Loans
The average fixed rate on 10-year private student loans last week dropped by 0.00% to 6.38%. The week prior, the average stood at 6.38%.
Borrowers in the market for a private student loan now can receive a lower 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 5.27%, 1.11% higher than today’s rate.
A borrower who finances $20,000 in private student loans at today’s average fixed rate would pay around $226 per month and approximately $7,105 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Average variable rates on five-year loans dropped last week to 3.96% on average from 3.96%.
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.
Financing a $20,000 five-year private loan at 3.96% would yield a monthly payment of approximately $368. A borrower would pay $2,078 in total interest over the life of the loan. Keep in mind that since the interest rate is variable, it could change monthly.
Related: How To Get A Private Student Loan
Getting a Private Student Loan
Private student loans may be a good option if you reach the annual borrowing limits for federal student loans or if you’re otherwise ineligible for them. You should consider a federal student loan as your first option, as interest rates are generally lower and you’ll enjoy more liberal repayment and forgiveness options than with a private loan. For example, the interest rate for federal undergraduate student loans is 3.73% for the 2021-22 school year.
Getting a private student loan generally involves applying directly through a non-federal lender, such as a bank, credit union or online entity. You may also be able to get a private student loan through a nonprofit organization, state agency or college.
If you’re an undergraduate with limited credit history, you’ll generally need to apply with a co-signer who can meet the lender’s borrowing requirements.
Here’s what to consider when applying for a private student loan:
- Make sure you qualify. Private student loans are credit-based, and lenders typically require a credit score in the high 600s. This is why having a co-signer can be particularly beneficial.
- Apply directly through lenders. You can apply directly on the lender’s website, via mail or over the phone.
- Compare 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.
Comparing 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.
Keep in mind that the best rates are only available to those with good or excellent credit.
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.
How Lenders Determine Your Rate
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.