When it comes to student loans, not all loans are created equal.
Loans can vary when it comes to interest rates, length of repayment, and payment options. The good news is that whether you’re taking out a new loan to pay for school or you want to refinance your current student loans, the process for finding the best rates is the same.
Choosing the best lender and student loan rates can save you hundreds or even thousands of dollars. Here are five steps that can help you find the best student loan rates and what you should consider before applying for a loan.
1. Shop around
When looking for a lender and a loan, make sure you compare several different companies. Comparison shopping can ensure you get the best terms that work for you and your budget.
But shopping around on your own can be overwhelming and confusing. That’s why it makes sense to use resources where you can compare a bunch of different lenders at once.
Our lender snapshot can show you crucial information all in one spot, like interest ranges, the length of repayment, and more.
2. Consider both fixed and variable student loan rates
When you’re comparing interest rates, make sure to think carefully about whether to go with a fixed interest rate or a variable rate.
With a variable rate, the lender gives you a lower rate at the beginning of your loan. Though that might be a great deal, a variable rate loan can change over time with the market. It can increase dramatically over your repayment term. This can also affect your monthly payment amount.
While a fixed interest rate is often higher than a variable rate, the interest rate is set for the duration of the loan and never changes. With a fixed rate loan, you have peace of mind, knowing that your loan payments will never change.
Your financial situation and goals affect which option makes the most sense for you. If you plan on paying off your debt aggressively, a variable rate can help you do that and save money. But if you think you’ll need five or more years to manage your debt, a fixed rate loan might be a safer option.
3. Compare repayment options
When looking for the best student loan rates, keep in mind that the length of repayment can affect your rate. In general, the shorter the repayment term, the lower your interest rate.
For example, if you take out a loan with a five-year term, you may have an interest rate around 4%. However, if you opt for a 20-year repayment term instead, your interest rate can be as high as 8%.
Extending the repayment term can reduce your monthly payment, giving you more room in your budget right now. But selecting the longer period can cost you thousands more over time.
You can compare the total cost of your loans and how it affects your payments by using this monthly payment calculator:
Student Loan Payment Calculator
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4. Look out for special incentives
Some lenders offer payment incentives that can further reduce your interest rate. For example, SoFi offers a 0.25% discount off your student loan or student loan refinancing rates when you sign up for automatic payments. Other lenders offer a discount when you’ve made a certain number of on-time payments.
And while 0.25% may not sound like much, it can save you a lot of money over time. For example, if you had a $35,000 loan at 5.7% interest and a 10-year repayment term, you would pay $10,998 in added interest.
But if signed up for automatic payments and got the 0.25% discount, your interest rate would drop to 5.45%. You would end up paying $10,477 in interest, saving over $500.
Lender incentives can help you get an even better rate, saving you money over the long-term.
5. Minimize the impact on your credit score
When looking at lenders, it’s important to minimize the impact on your credit score. Maintaining good credit can help you get more competitive rates. Plus, shopping carefully can ensure you can get approved for other forms of credit too, such as credit cards, auto loans, or a mortgage.
Before you apply, check to see if the lender does a soft credit check or a hard credit inquiry. A hard inquiry is when a lender checks your background to make a decision on whether or not to give you a loan. A hard credit inquiry can lower your score and stay on your credit report for up to two years.
Soft inquiries are a background check of your credit report, but do not affect your credit in any way and do not stay on your credit history. Many companies will make a soft inquiry to give you a rate quote and will process a hard inquiry only when you’re ready to proceed with a loan.
If you’re worried about your credit, apply with lenders who only do a soft inquiry first to get rate quotes. But try to complete offers within 30 days. That approach will lessen the hit to your credit. You can also limit the effect on your credit by checking lenders’ requirements before you apply.
Finding the best student loan rates
Finding the best student loan rates can be overwhelming — but have no fear. There are tools available to help you get the most competitive deals.
You can compare private student loans and review the best student loan refinancing companies on Student Loan Hero.
Need a student loan?Here are our top student loan lenders of 2018!
1 = Citizens Disclaimer.
2 = CollegeAve Autopay Disclaimer: All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
3 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
|4.12% – 11.85%*3||Undergraduate and Graduate||Visit SallieMae|
|3.69% – 12.07%2||Undergraduate, Graduate, and Parents||Visit CollegeAve|
|4.07% – 12.19%1||Undergraduate, Graduate, and Parents||Visit Citizens|
|3.83% – 12.11%||Undergraduate and Graduate||Visit Ascent|
|4.63% – 9.71%||Undergraduate and Graduate||Visit LendKey|
|3.62% – 9.79%||Undergraduate, Graduate, and Parents||Visit CommonBond|