When you have no credit history or a poor credit history then getting a college loan may not be easy. But, if you are able to find somebody suitable to agree to be a cosigner and guarantee the repayment of your loan then this can certainly help you to secure a loan. Most students usually have few if any credit cards, no not have car loans and rarely have a home mortgage loan so that they have no credit history against which a lender can judge the risks in granted them a loan. Additionally, in those cases where students do have a credit history it is all too frequently less than favorable because, as with a lot of us in our youth, they have made some hasty decisions and overreached themselves with the result that they ran into problems making their repayments. Either way the absence of a credit history or problems with late repayments and possibly defaulting on loans will normally place a student in a high risk category so far as most lenders are concerned. As a result loan officers, which includes those taking decision on behalf of the government's Federal student loans programs, will frequently handle applications from such students with caution. Often applications will be denied or, in some cases, loans may be approved but a higher interest rate will be charged to counterbalance the risk and to compensate for increased default rates. One method of counteracting the absence of a credit history or a bad credit score is for students to use a cosigner on their loan application. In a lot of cases this will be one of the student's parents and loan officers will consider the credit history of the parent when deciding whether or not to grant a loan. It is also the parent's credit history becomes the main factor in determining the interest rate to be charged and those with a good history will typically get the best rates, whilst those with low credit scores will usually pay a higher rate. This difference could appear to be small at first glance but can in fact amount to a substantial sum over the normal repayment period of 10 years. For instance, one popular program provides loans at 4% for borrowers with a good credit history increasing to 6% for those with a poorer but nevertheless good enough record. This difference of 2% might not seem like much but could amount to more than $5,000 over the life of a normal loan. It is not at all uncommon today for a student to require as much as $100,000 to fund an undergraduate education and, even if interest is paid from the beginning rather than being accumulated, interest at the current Stafford loan rate of 6.8% is in the region of $567 per month or $6,600 per year. Reducing that interest rate to 5%, which is the present rate for a need-based Perkins loan, reduces these figures to $417 and $4,820 respectively. It also has to be remembered that these figures assume that repayment begins straight away. It is however much more usual for repayment to be deferred until six months after college which will increase these figures considerably. Borrowers with a cosigner who has a good credit record can not only improve their chances of getting a loan in the first place, but can also reduce their total loan repayment greatly.
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