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The average interest rate on 10-year fixed-rate private student loans dropped last week. For borrowers pursuing private loans to fill in gaps to pay for higher education expenses, rates remain relatively low for borrowers with solid credit.
The average fixed interest rate on a 10-year private student loan was 7.06% from November 21 to November 26. That’s for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace. The average interest rate on a five-year variable-rate loan was 8.72% 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 dipped by 0.70% to 7.06%. The week prior, the average stood at 7.76%.
Borrowers in the market for a private student loan now can receive a higher 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 6.41%, 0.65% lower than today’s rate.
If you were to finance $20,000 in student loans at today’s average fixed rate, you’d pay around $233 per month and approximately $7,940 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Average variable rates on five-year loans fell last week to 8.72% on average from 9.06%.
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 8.72% would yield a monthly payment of approximately $412. A borrower would pay $4,747 in total interest over the life of the loan. But the rate in this example is variable, and it could move up or down each month.
Related: How To Get A Private Student Loan
Shopping for 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.
If you have good or excellent credit, you have a better chance at landing the best interest rates.
How much should you borrow? Experts generally recommend borrowing no more than you’ll earn in your first year out of college. How much can you borrow? Some lenders cap the amount you can borrow each year, while others don’t. When you’re shopping around for a loan, take to lenders about how the loan is disbursed and what costs it will cover.
How To Get 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.
To get a private student loan, you’ll generally need to apply directly through a non-federal lender. You can find private student loans through banks, credit unions and online entities. Nonprofit organizations, state agencies and colleges also offer loans.
It’s important to note that you’ll need a qualified co-signer if you have limited credit history, as undergraduates often do.
When applying for a private student loan, take into consideration the following:
- Your qualifications. Private student loans are credit-based. Lenders typically require a credit score in the higher 600s. This is where having a co-signer can be particularly beneficial.
- Where to apply. You can apply directly on the lender’s website, via mail or over the phone.
- 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.
How Lenders Determine Your Rate
The rate you receive depends on whether you’re getting a fixed or variable loan. Rates, in part, are based on your creditworthiness—those with higher credit scores often get the lowest rates. But your rate is based on other factors as well. Credit history, income and even the degree you’re working on and your career can play a part.