Interest rates are part of the important factors to consider before applying for a student loan. As a student who wants to study abroad, there is a list of deciding factors you should carefully consider first. Some of them include:
- Supported schools: ensure that your loan service provider supports the school you have gained admission to.
- Maximum amount: make sure that the loan amount they offer can cover your tuition fee and other expenses as the case may be.
- Ease of application process: find out the requirements for the application and easy it will be for you to meet up.
- Eligibility condition: check their eligibility conditions and make sure you measure up.
- Eligible countries: be sure that your loan service provider gives loans to students from your country of origin.
- Repayment term: consider the repayment term and plan your budget so that you will be able to meet up.
- Supported programmes: ensure the loans cover the degree type and course of study you are pursuing.
- Interest rate: this is also an important factor to consider. Ensure their interest rates are reasonable and affordable.
Table of Contents
What are Interest Rates?
Interest is the amount of interest that is paid over a period. It is a proportion of the principal sum borrowed. The total interest rate on an amount is dependent on certain factors like the principal sum, the percentage interest rate from the lender and the amount of time over which the money is borrowed. There are different types of interest rates, they include:
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- Fixed Interest Rate
- Variable Interest Rate
- Annual Percentage Rate
- Prime Interest Rate
- Discounted Interest Rate
- Simple Interest Rate
- Compound Interest Rate
What are Fixed Interest Rates?
A fixed interest rate means that you will have to pay the same percentage of interest throughout the repayment term of your student loan. When you opt for the fixed interest rate on your student loans, your monthly payment will not change all through the lifetime of your loan, even if you opt for the refinance option.
Also, fixed interest rates will not change regardless of the economic conditions. This means that if there is inflation, it will not affect the amount you get to pay back. With this, you get to know the amount to pay back every month and it helps with planning.
Pros of Fixed Interest Rates
- Stable interest rate because it does not increase
- Budgeting is easy because the monthly payment does not increase.
- It’s easier to calculate the monthly repayment amount.
Cons of Fixed Interest Rates
- Generally, they are higher in percentage than variable interest rates
- When variable interest rates are low, you get to miss out because you pay extra.
What are Variable Interest Rates
On the other hand, the variable interest rate is the direct opposite of fixed interest rates. This implies that variable interest rates are subject to changes when there is a change in the economic situation in the country. Also, monthly repayments could either increase or reduce depending on the deciding factors.
Pros of Variable Interest Rates
- The rates usually start lower and this makes it affordable during the first year.
- If there is no change in the economic situation, then you will enjoy paying a low amount with the variable interest rate.
Cons of Variable Interest Rates
- Monthly payments are not predictable.
- Because the rates are not predictable, it is not exactly easy to budget for it
- The amount can increase at any time if there is a change in the economic situation in the country.
Annual Percentage Rate
The annual percentage rate (APR) is the yearly interest accrued by a sum of money charged to borrowers or paid to investors/lenders. The APR is normally expressed in percent. And it represents the actual yearly cost of funds over a period earned on an investment. It includes any fees or any additional costs associated with the transaction. The annual percentage rate (APR) provides consumers with a bottom-line number which they can compare among lenders.
Student Loan Options WIth their Interest Rates
Below is a list of student loan providers and the interest rates they offer.
1. MPower Finance
MPower is a popular loan option choice for students who want loans to further their study abroad. They do not require any cosigner or collateral and are available for international students. Graduate students can borrow with a fixed interest rate of 12.99% (13.98%APR). This is also the maximum limit as it will not be higher than this. There is also a 0.25% discount for students who make loan repayments through automatic withdrawal from their bank accounts.Â
2. Citizens Group
Citizens Group on the other hand requires a cosigner. Applying for a loan from Citizen’s Group with a cosigner increases the chances of getting approved for a bigger loan with lower rates. They have a fixed interest rate of 6.03%-12.78% and a fixed interest rate of 6.03%-12.78%. In addition, they offer a repayment term of 5,7,10,15 or 20 years.
3. Quorum
They are also a private loan company that offers student loans. Quorum offers a fixed interest rate between 4.74%-11.74% APR and variable interest rates between 3.25%-9.99% APR
4. Ascent Funding
They are also a private loan company and they require a cosigner too for international students. They also offer a fixed interest rate that starts from 4.48% to 15.51% and a variable rate of 5.94% to 15.83%. However, there is a 0.25% autopay discount. The repayment term is between 5 to 15 years.
5. Prodigy Finance
Just like MPower, Prodigy Finance does not also require collateral or a cosigner. The minimum APR Prodigy Finance offers is 11.18%. The accurate rates differ according to circumstances, loan terms and the amount. Additionally, payment doesn’t start until 6 months after studies if you study abroad on a Prodigy loan. They have a flexible repayment term of 7 to 20 years but it is advisable to pay early so as not to incur any penalties or extra costs.
6. Earnest
Earnest has a fixed interest rate of 4.42% to 15.90% with autopay and a variable interest rate of 5.39% to 16.20% with autopay. The repayment term is also between 5 to 15 years.
7. Sallie Mae
They offer loans with a fixed interest rate of 4.50% to 14.83% while the variable interest rates are 5.87% to 16.45%. The minimum amount you can borrow also starts from $1,000. The repayment term is between 5 years to 10 years.
Recommendation For International Students
When it comes to picking the right answer there is no ultimate answer as both options have their pros and cons. However, it is advisable to go through each of the loan services provided and pick the one that you believe is most favourable to you.Â
Your decision should be influenced by solid factors like the terms and conditions applied, the current market rate, your monthly income, your monthly expenses and so on. Moreover, it is usually advised that international students should not opt for the variable options, especially due to the current economic situation which is very much unstable and unpredictable.
While the interest on variable rates might look more attractive because it is lower, it might not remain so in the long run. It is also important to note that some loan service providers offer the autopay option which means that the amount is deducted from the source. If you opt-in for the variable interest loans and the price increases, it means that it will affect your budget.
Additionally, there are points to consider which will enhance the repayment of your loans, they include:
- Pay more than the stipulated amount every month if you can.
- Make your payments bi-weekly as you end up paying your loans faster.
- Maximize windfalls when you come across them.
- Consider a change of payment plan if your loan service provider consents.
- Settle for the refinancing option.
Get Started With Us
If you are currently making plans on how to further your studies abroad, but are uncertain about the right loan plan to opt for, you should reach out to an experienced educational consultant who can help you with this. At EdXtra, we are here to put you through and help you through the complexities you are likely to encounter as you proceed on this journey. You can reach out to us today to get started.
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