Private Loans – What You Should Know?
Private loan is a loan offered by private institutions like banks or other lending companies, instead of by governmental organizations, like federal loan. Private loan is pretty popular these days with thousands of people across the nation applying for it every day and every one of them has perfect reasons for seeking this type of financial help.
Popularity of Private Loans
On one hand, it is not easy for regular borrowers to get loans from government lending institutions and large lending companies, particularly for those with not so good credit history while many private lenders of secured loans are willing to approve any loan applications. Besides, credit history is by no means the only criterion when it comes to private loans though it does matter a lot.
On another hand, if you need large sums of money immediately, for example, you want to hold a wedding ceremony, buy a car or repay your credit card debt (the last one is the most popular reason), the red tape of many traditional lending organizations will prove extremely troublesome. Whatever is your reason, private loan can be a great way to relieve your from purchasing pressure and debt in short notice.
Why Choosing Private Student Loans?
There are many categories of private loans, among which private student loan is pretty unique. With the cost of going to college rising all the time, an increasing number of people are looking for loans. Though federal loan is superior in many respects, its terms and conditions are sometimes too strict and too harsh for many. Even those who are qualified for federal loan may also be disappointed to find that the loan can not fulfill their financial needs with the growing costs of everything, like tuition fee, enrollment fee, boarding, food and other expenses. Thus, more and more people turn to private loans.
Advantages of Private Student Loans
Private student loan is a type of unsecured personal loan which is not guaranteed by the government. Anyway, it must have its own merits to win so much popularity.
The advantages of private student loan include:
- The processing of a private loan takes less time than that of federal loans, so that you can get quickly approved. In most cases, it takes only five working days.
- No limitation on the total amount of loan, so that you can take out as much as you need to cover all your college costs, instead of tuition alone. You can also use the money for a multiple of purposes like books and equipment.
- The private student loan is disbursed directly onto the accounts of the borrower so that they can plan their expenses accordingly while the federal loan is disbursed to the college that the applicants are enrolled.
- Private loan is not need-based so that you are still qualified even if your parents are wealthy.
Demerits of Private Student Loans
Private loan has its own shortcomings when compared with federal loan, which is why one shouldn’t be more cautious about applying for private loan. The following are the main demerits of this kind of student loan.
1) Higher Demands
The applicant need to have a good credit history to obtain private loans owing partly to the fact that education loan is no collateral loan. Your ability to receive a private depends on your creditworthiness and credit score and most lenders also require you to have a co-signer with high credit score.
2) Higher Fees
Private loan has much higher interest rate and processing fee than federal student loan. Private loan is a for-profit activity and is closely connected with market performance.
3) More Restrictions
More restrictive repayment terms are imposed on private loans. The receivers can only enjoy deferment of payment when they are in school. No grace period or further deferment is available.
In an era where economic meltdown and recession become household terms, most of us find it difficult to pay our monthly bills, not to mention saving for retirement or an emergency fund. If we want to pursue higher education, receive the training needed to advance our careers, buy a new home or get a car, there seems to be only one option for us: taking a loan.