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A Student Loan With A Bad Credit History And Without A Cosigner Can Be Expensive

By: Donald Saunders

When you have no credit history or a bad credit history then finding a student loan might not be so simple. If however you are able to get someone suitable to agree to be a cosigner and guarantee the repayment of your loan then this can certainly help you to secure a loan.

Most students often have few if any credit cards, no car loans and seldom have a home loan which means that they have no credit history against which a lender can assess the risks in granted them a loan. And, where students have a credit history it is often less than favorable because, like many of us when we are young, they have made some rash decisions and overstretched themselves with the result that they ran into problems making their repayment obligations.

In either case the absence of any credit history or problems with late payments and possibly even defaulting on a loan will usually place a student in a high risk category as far as many lenders are concerned. Consequently loan officers, including those taking decision on behalf of the government's Federal student loans programs, will often handle applications from students in this situation with caution. In many cases applications will be denied or, in borderline instances, loans will be approved but a high interest rate will be applied to make up for the risk and to compensate for higher default rates.

One method of counteracting the absence of any credit history or a poor credit score is for students to have a cosigner for their loan application. In the majority of cases this will be one of the student's parents and loan officers will consider the parent's credit history when deciding whether or not to grant a loan.

In these circumstances the parent's credit history becomes the primary factor in deciding the interest rate to be charged and parents with a superior credit history will characteristically get the best rates, while parents with lower credit scores will usually pay a high rate. This difference may seem small at first sight but can in actual fact amount to a substantial sum over the standard 10 year repayment period.

As an example, one popular program grants loans at an interest rate of 4% for borrowers with an excellent credit history increasing to 6% for people with a poorer but still good enough record. This 2% difference might not appear to be much but can represent in excess of $5,000 over the life of a normal loan.

It is not at all uncommon these days for students to require as much as $100,000 to finance an undergraduate education and, even if interest is paid from the start rather than being accumulated, interest at the Stafford loan rate of 6.8% is in the region of $567 every month or $6,600 each year. Lowering that interest rate to 5%, which is the present rate for a need-based Perkins loan, reduces these figures to $417 and $4,820 respectively.

It should also be remembered that these figures assume that repayment begins straight away. It is however far more usual for repayment to be deferred until six months after college and this will increase these figures considerably.

Students with a cosigner who has an excellent credit record can not only increase their chances of obtaining a loan in the first place, but can also reduce their total loan repayment significantly.

Article Source: Main Articles

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