Choosing a Lender

When applying for a private loan you first want to do a little research on the lenders you wish to choose.  Details such as grace period, interest rate reduction benefit, and customer service vary from lender to lender.

Factors to Consider When Choosing a Lender

 

Borrower Benefits

Some lenders subsidize the fees.  Some will also offer back end benefits such as a reduction of the interest rate for on time repayment, or for making auto-debit payments.  Seek out lenders with zero fees and/or low origination/default fees.  Also, does the lender offer any back-end benefits, such as an interest rate reduction for on time repayments or auto-debit payments?  What benefits are offered?  Find out if the lender has front end benefits, back end benefits, or both?  What percentage of borrowers receives these benefits?  Benefits can include things like:

  1. A low or no Origination Fee (a lender can charge up to 1%)
  2. A low or no Default Fee (a guarantor can charge up to 1%)
  3. A reduced interest rate for on time repayment
  4. A reduced interest rate for auto debit payments

Is it possible to lose these benefits, and if so, what circumstances can lead to the loss of benefits?

Customer Service 

Consider such things as, how long do they take to answer the phone.  Did you have to go through multiple menus before speaking to a representative?  (Hint: Call their 1-800 numbers and see how long you are on hold.  Ask basic questions.  Do they know the answers without having to put you on hold to find out?)  Some questions to consider asking:

  • Do they sell their loans?   The lender themselves may have excellent service, but if they sell your loans on the secondary market, will the company that bought your loans offer this same exemplary service?
  • What are their hours of operation? Some lenders are only open during certain hours, and do these hours work for you?  What type of services do they offer during those hours and how quickly can I reach a real person if I have more specific questions?  In the event I call outside of normal operating hours what online resources are available to me? 
  • How do you like their website?  Are there additional tools available to you like loan repayment calculators, or various debt management tools/tutorials?  What is their website's capability and usability?

Borrower Education Tools 

Some lenders offer borrower education and debt management tools.  Check their website: do they offer educational tools that appeal to you and that are relevant to your needs?

  • How often is the loan interest capitalized?  If you plan on borrowing a Private Student Loan interest will begin to accrue on that loan as soon as the loan disburses.  As such, you will want to know how often the lender capitalizes interest.  The more often the lender capitalizes the interest, the more money you will pay in the end.
  • If you are planning to reside outside of the US upon graduation, does your lender have online payment capabilities or a number by which you can contact them if you are outside of the US?