Alternative Loan Guide
Alternative loans are private loans through a lending institution and not part of federal government programs. They 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 before borrowing from an alternative loan program.
Alternative loans are in the student's name and a cosigner is often required. It may be possible to apply online or by phone and know within a matter of minutes if you are approved.
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 is a good idea to borrow from the same lender each year, so make sure the loan can cover your costs throughout your entire education.
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 adding a cosigner can help reduce the interest rate of the loan. If you cannot find a cosigner, you will 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 cannot make regular payments while you are in school, you will need to find a loan that does not 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 loan.