Helpful Tips for Choosing an Alternative Loan
- Compare alternative loans and choose the one that's best for you.
- Alternative loans are private loans through a lending institution and not part of federal government programs.
- Alternative loans are more expensive than federal government guaranteed loans and should only be used when all other options have been exhausted.
- Be sure you have applied for all available scholarships, grants, work-study, and federal loan programs offered by Capital University before borrowing from an alternative loan program.
- Alternative loans are in the student's name and a cosigner is usually required. Once a complete application has been received, the lender will perform a credit check and will let you know within two to three weeks if your application has been approved.
What Should I look for in an Alternative Loan?
Annual Percentage Rate (APR)
The APR is the annual cost of your loan including the effect of any fees and charges in addition to interest. The APR is determined based on the terms of the loan. APRs will differ based on the terms and loan amount. Make sure you are comparing like loan amounts when comparing APRs to receive a true comparison. Note, if the rate is variable, the APR may be increased after consummation of the loan. Take these terms and APRs into consideration when borrowing an alternative loan.
Does the alternative loan reward borrowers who make payments on-time? For example, after 48 consecutive on-time payments will you receive an interest rate reduction?
Does the loan have an annual or aggregate limit? Can you afford to borrow within these limits? It's a good idea to borrow from the same lender each year, so make sure the loan can cover your costs throughout your entire education. Lender for Federal Loans Does the lender of the alternative loan also participate in the Federal Family Education Loan Program (FFELP)? It may be easier to borrow your Federal Stafford and alternative loans through the same lender. Some lenders can even combine the billing for these loans so you will only receive one monthly billing statement.
Do you need to know quickly if you qualify? Does the lender offer loan pre-approval over the phone or internet?
Does the alternative loan require you to have a cosigner? Sometimes cosigners reduce the costs of the loan, but if you can't find a cosigner, you'll need to find an alternative loan you may borrow on your own.
If you choose not to pay the interest on your loan while you are in school, the interest may be capitalized (added to your principal balance). When is the interest capitalized? Annually? At repayment? If the interest is capitalized annually the loan is more expensive than if it is capitalized only once at repayment.
Does repayment begin immediately or after you graduate or leave school? Make payments whenever you can afford to, but if you can't make regular payments while you're in school, you'll need to find a loan that doesn't require immediate repayment.
How long is the repayment period in which you repay the loan? If your educational costs require you to borrow large amounts, you may need a longer time to repay the loans.
Give Yourself Credit
Lenders use credit scores to make fast and objective decisions on which applicants are likely to repay their loans on time. Credit scoring is calculated using many pieces of your past bill payment history (number and types of accounts, late payments, outstanding debt, and the age of your accounts). The way you have handled credit in the past is often a good indication of how you will manage credit in the future. Therefore, your credit score is like a snapshot of your level of credit risk at a particular point-in-time; when your credit information changes, so does your credit score. Give yourself the credit you deserve. Pay your bills on time, pay down any outstanding debt and avoid taking on new debt or applying for too many new credit cards.