A Student Loan With A Bad Credit Score And With No Cosigner Can Be Expensive

By Author: Donald Saunders
Total Articles: 84
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Should you have no credit history or a bad credit history then finding a student loan may not be easy. But, if you can get someone suitable to act as a cosigner and guarantee your loan repayment then this can certainly help considerably in securing a loan.

Students generally have few if any credit cards, no car loans and very rarely have a home mortgage loan so that they simply have little or no credit history against which a lender can judge the risks in giving them a loan. In addition, where students have a credit history it is frequently relatively poor because, like a lot of us in our youth, they have made some ill-advised decisions and overreached themselves so that they ran into problems making their repayments.

In either case the absence of a credit history or problems with late repayments and possibly even defaulting on loans will usually place a student in a high risk category as far as most lenders are concerned. As a result loan officers, including those responsible for taking decision on behalf of the Federal student loans programs, will frequently handle applications from students in this situation ...
... with caution. A lot of times applications will be denied or, in some cases, loans will be granted but a higher interest rate will be applied to counterbalance the risk and to compensate for higher default rates.

One way to counteract the absence of a credit history or a bad credit record is for students to use a cosigner on their application for a loan. In a lot of cases this will be a parent and loan officers will look then at the credit history of the parent when deciding whether to grant a loan.

At the same time the parent's credit history becomes the chief factor in determining the interest rate for the loan and those with a good credit history will characteristically get the best rates, whilst those with low credit scores will normally pay a higher rate. This difference may appear to be small at first glance but can in fact add up to a substantial sum over the normal 10 year repayment period.

For example, one popular program offers loans at an interest rate of 4% for borrowers with an excellent credit history increasing to 6% for borrowers with a poorer but nonetheless adequate record. The variation of 2% might not seem like much but could amount to more than $5,000 over the life of a normal loan.

It is not at all unusual these days for students to require as much as $100,000 to finance an undergraduate education and, even if interest is paid from the outset rather than being accumulated, interest at the present Stafford loan rate of 6.8% is close to $567 every month or $6,600 each year. Lowering that interest rate to 5%, which is the current rate for a Perkins loan, lowers these numbers to $417 and $4,820 respectively.

It also has to be born in mind that these figures assume that repayment begins straight away. It is however far more common for repayment to be deferred until six months after college and this will increase these figures considerably.

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