Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but this does not affect the opinions or ratings of our editors.
The average 10-year fixed rate private student loan interest rate fell last week. For many borrowers, this means that rates remain low enough to make private student loans a decent option, especially if you have good credit.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan market from November 1-5, the average fixed interest rate on a 10-year private student loan was 6. , 54%. On a five-year variable rate loan, the rate was 3.76%, according to Credible.com.
Related: Best private student loans
Fixed rate loans
The average fixed rate on 10-year private student loans fell last week from 0.21% to 6.54%. The previous week, the average was 6.75%.
Borrowers looking for a private student loan can now benefit from a higher rate than they would have at this time last year. At the same time last year, the average fixed rate on a 10-year loan was 5.51%, 1.03% lower than the current rate.
A borrower who finances $ 20,000 in private student loans at the current average fixed rate would pay about $ 228 per month and about $ 7,300 in total interest over 10 years, according to the Forbes Advisor student loan calculator.
Variable rate loans
Average variable rates on five-year loans fell 1.67% last week to 3.76%.
Unlike fixed rates, variable interest rates fluctuate over the life of the loan. Variable rates can start off lower than fixed rates, especially during times when rates are generally low, but they can increase over time.
Private lenders often offer borrowers the option of choosing between fixed and variable interest rates. Fixed rates may be the safest bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it might be beneficial to choose a variable loan.
Let’s say you funded a five-year, $ 20,000 loan with a variable interest rate of 3.76%. You would pay around $ 366 on average per month. You would pay approximately $ 1,970 in total interest over the life of the loan. Keep in mind that since interest is variable, it can go up or down from month to month.
Related: How to get a private student loan
How lenders determine your rate
Lenders offering private student loans generally offer fixed and variable interest rates. These rates are, in part, based on your creditworthiness. Generally, the higher your credit score, the lower the interest rate you will receive. But credit history, income, the degree you are working on, and your career can all factor into the interest rate you receive.
Apply for a private student loan
If you meet or don’t qualify for annual borrowing limits for federal student loans, private student loans may be a decent option. But consider a federal student loan as your first option, as interest rates are generally lower. For example, the federal undergraduate student loan interest rate is 3.73% for the 2021-2022 school year. You will also benefit from more liberal repayment and forgiveness options with federal student loans.
To get a private student loan, you will usually need to apply directly from a non-federal lender. You can find private student loans from banks, credit unions, and online entities. Nonprofits, state agencies, and colleges also offer loans.
It’s important to note that you’ll need a qualified co-signer if you have a limited credit history, as undergraduates often do.
Here is what to consider when applying for a private student loan:
- Make sure you qualify.Private student loans are credit-based and lenders typically require a credit score of around 600. This is why having a co-signer can be particularly beneficial.
- Apply directly to lenders.You can apply directly on the lender’s website, by mail or by phone.
- Compare your options.See what each lender is offering and compare the interest rate, term, future monthly payment, origination fees, and late fees. Also check to see if the lender offers a co-signer discharge so that the co-borrower can potentially opt out of the loan.
Compare private student loans
When you compare private student loan options, take a close look at the overall cost of the loan. This includes the interest rate and fees. It is also important to consider the type of help the lender is offering if you cannot afford your payments.
If you have good or excellent credit, you have a better chance of getting the best interest rates.
Experts generally recommend that you borrow no more than what you will earn in your first year out of college. While some lenders cap the amount of money you can borrow each year, others don’t. When you compare loans, determine how the loan will be disbursed and what costs it covers.