While there are a lot of resources out there helping students to find the best private loans, I’m hoping to take it a step further and discuss some of the best repayment tips and tricks private loan holders may not be aware of. There are a lot of ways students can not only manage their debt, but even reduce it!
1. Keep an eye on rewards and incentives
Did you know that the vast majority of private lenders offer repayment incentives such as interest rate reductions? In many cases, these reductions come from automating payments through a checking or savings account (ACH). The incentives can range from about .25% to .50% and can save you a lot of interest.
Cosigner release is another common benefit of many private loans. This allows you to free a cosigner of their financial burden after you’ve successfully completed a certain number of on-time payments. If your loan offers this, I’d recommend marking the last payment month on your calendar so you don’t forget to call your lender to take advantage of this benefit.
2. Make Prinicipal-only Overpayments
Yes, overpayments. While I realize that not everyone has the resources to do this, for those who can, paying over your minimum can cut years off of your private student loan repayment. Here’s an example (I used piti.us for my calculator):
Loan Amount: $10,000
Repayment Term: 15 years or 180 months
Interest Rate: 6.0%
Monthly Payment: $84
Amount paid in interest: $5,189
So if you were to pay $20 more each month and apply the payments directly to principal, you’re total paid in interest would be $3,667.
If we take this one step further, and say you pay $40 more per month, you would only pay $2,834 in interest. Plus, the higher your interest rate, the greater the savings.
To calculate your own monthly payments, check out CollegeToolKit’s College Loan Repayment Calculator.
3. Use auto-bill pay or set a calendar reminder to pay your loans
Even if you don’t get an interest rate reduction for auto-debit, it still is the best way to make sure your loans always get paid on time. The easiest way to rack up a ton of debt (and screw up your credit) in repayment is to miss a loan and get slammed with a late fee, or worse, go into default.
At the bare minimum, go into your favorite calendar app and make a recurring reminder for your 2-3 days before the payment is due each month. If you’re the forgetful sort, make it a week before.
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Do you have a good private student loan tip? Post it in the comments!
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