Student Loans With A Bad Credit Score And Without A Cosigner Can Be Expensive - By: Don Saunders

When you have no credit history or a poor credit history then finding a college loan might be hard. If however you can find someone suitable to agree to be a cosigner and to guarantee your loan repayment then this can certainly help considerably in securing a loan.

Most students generally have few if any credit cards, no not have car loans and rarely have a home mortgage loan which means that they simply have no credit history against which a lender can judge the risks in granted them a loan. And, in those cases where students do have a credit history it is all too often relatively poor because, like a lot of us in our youth, they have made some irresponsible decisions and overstretched themselves with the result that they ran into difficulties making their repayment obligations.

In either case the lack of any credit history or problems with late payments and perhaps even defaulting on a loan will often put a student in a high risk category as far as a lot of lenders are concerned. As a consequence loan officers, which includes those responsible for taking decision on behalf of the government's Federal student loans programs, will generally process applications from such students with care. A lot of times applications will be turned down or, in borderline cases, loans will be approved but a higher interest rate will be charged to balance the risk and to compensate for increased default rates.

One way to counteract the lack of any credit history or a poor credit record is for students to use a cosigner for their application for a loan. In many cases this will be one of the student's parents and loan officers will look then at the credit history of the parent when deciding whether or not to grant a loan.

In this case the parent's credit history becomes the primary factor in determining the interest rate to be charged and people with a superior credit history will typically receive the best rates, whilst people with low credit scores will generally pay a higher rate. The difference might appear to be small at first glance but can in reality add up to a substantial sum over the normal 10 year repayment period.

As an example, one popular program provides loans at an interest rate of 4% for borrowers with a good credit history increasing to 6% for people with a poorer but still satisfactory record. The 2% variation may not appear to be much but can amount to in excess of $5,000 over the life of a loan.

It is not uncommon nowadays for a student to need as much as $100,000 to fund an undergraduate education and, even where interest is paid from the beginning rather than being accumulated, interest at the Stafford loan rate of 6.8% is about $567 each month or $6,600 every year. Lowering that interest rate to 5%, which is the current rate for a need-based Perkins loan, reduces these numbers to $417 and $4,820 respectively.

It also has to be born in mind that these numbers assume that repayment starts immediately. However, it is much more usual for students to defer repayment until six months after leaving college and this will increase these numbers greatly.

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 they can also lower their total loan repayment very considerably.

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