Bad credit can be an obstacle when applying for a student loan. But there are still options available to college students who require extra funding.
Private student loans don’t need a credit check like federal student loans do, but your credit history can affect the terms of the loan. To find the loan that’s perfect for you, take time to shop around and compare offers.
Applying for a loan
Private student loans can be an attractive option for students who require extra funding but do not meet federal student loan eligibility requirements. Unfortunately, having a poor credit rating may make it more difficult to be approved for a private loan and may raise your interest rate as well.
Private lenders evaluate your credit history, income and debt-to-income ratio when making their lending decisions. They may also take into account the credit of any cosigners involved.
Borrowers with a FICO score above 670 have the best chances for qualifying for a private loan, though those with lower scores can find lenders willing to work with them and less stringent requirements than federal loans.
The terms of a private loan are determined by your credit history, the amount and length of the loan, as well as whether it has either fixed or variable rate options. Variable rates tend to fluctuate, making monthly payments more unpredictable.
Lenders that accept bad credit
There are plenty of lenders who will accept bad credit and help cover college costs. Private student loans tend to offer more flexible repayment options and higher loan amounts than federal student loans, which usually don’t take credit into account.
Private student loans usually carry higher interest rates than federal student loans, so it’s wise to shop around before you commit. Credible is a great tool for this; they rate private student lenders based on 10 different criteria like interest rates, repayment options, fees, discounts and customer service availability.
A good credit score is one of the most significant factors when applying for a private loan. While it won’t guarantee approval, having one does increase your chances. Having a cosigner also helps as they’ll legally assume responsibility for any debt you incur.
Requirements for cosigners
Most students require a cosigner on their private student loan in order to increase their approval chances and secure a better interest rate. A reliable cosigner should possess both good credit history and income, which will demonstrate that they will repay the loan promptly.
However, not all lenders accept cosigners. Some have fewer requirements than others, so it’s essential to find the lender with the most accommodating conditions for you.
Some lenders provide a range of repayment options, such as fixed monthly payments and flexible forbearance policies. This can help you manage your loan better and prevent late fees.
Many people enlist the assistance of family or friends as cosigners, especially for those without credit history or who can’t get approved by traditional lenders. But it is important to be aware of the potential risks in serving as a cosigner and determine if it is truly the best decision for you.
Private student loans can be an excellent solution to cover education expenses if you don’t qualify for federal student aid. However, your credit score plays a role in determining your interest rates.
Even if your credit score is high, it’s wise to work on improving it before applying for private student loans. Not only will having good credit enable you to qualify for better terms and easier approval processes, but having excellent credit also makes applying easier overall.
Creditworthy cosigners can improve your chances of approval for a private loan and reduce your interest rate. But keep in mind that they will assume responsibility for any debt if you can’t repay it, so be sure to select carefully.
MPOWER and Funding U are two lenders offering student loans for those with bad credit, as both don’t consider your credit score when considering repayment options. Plus, both allow full payment options so you can save money on interest while in school and start paying off your loan sooner.