How to get a low-interest student loan

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Before you accept any type of loan, it’s wise to take the time to do a little research first. You can (and should) compare potential lenders, loan options, repayment terms, fees and, of course, interest rates.

As you look into student loan options, you’ll find that they come in two varieties — federal and private. Federal student loans feature fixed interest rates that are the same across the board for all borrowers. Private student loans, by comparison, can have a wide range of interest rate options to consider.

How to get the lowest student loan interest rate

When you’re ready to start shopping for student loans, these basic steps may make it easier to find the lowest interest rate available.

Compare rates

If you plan to take out federal student loans to finance your educational expenses, this step should be simple. The interest rates on federal student loans are the same for all borrowers, although federal student loan interest rates may vary based on the type of federal student loan you receive and when the loan is disbursed to you.

However, if you’re considering private student loans, it’s critical to dig a little deeper. Interest rates between private lenders can vary greatly depending on factors such as your creditworthiness, income and whether you’re applying with a co-signer. Shopping around with a few lenders is the only way to find the lowest interest rate for your situation.

Apply with a co-signer

Many students are young and haven’t yet taken the opportunity to establish credit. If this describes your situation, you might find it difficult to qualify for an attractive interest rate on a private student loan by yourself. Some lenders might hesitate to do business with you (or charge you a higher interest rate to protect themselves from the unknown risk).

Yet if a loved one with well-established credit is willing to co-sign for your loan, their good credit rating could potentially work in your favor. Just keep in mind that asking a family member or friend to co-sign for you isn’t a small favor. Your loved one will literally be putting their credit rating on the line in an effort to help you lock in a better rate.

If you fail to repay as promised, your co-signer will be on the hook for the debt, too. Even if you never pay late, the presence of the student loan on your loved one’s credit report could affect their ability to receive additional financing in the future — so it’s important for your co-signer to understand the risks involved.

Improve your credit score

Good credit can work to your advantage with private student loans, just as it can with most other types of financing. It’s worth it to try to improve your credit score before you apply for a new loan.

Higher credit scores signal to lenders that you’re a lower credit risk. This means that you’re more likely to repay your credit obligations on time. As a result, many lenders may see you as a more attractive borrower and offer you lower interest rates in an effort to win your business.

Take advantage of autopay discounts

Federal and private student loan lenders alike will often offer a discount if you sign up for automatic monthly payments from your bank account. Autopay discounts generally aren’t huge, but they might save you around 0.25 percent off your normal interest rate.

Autopay may also be a good idea from a credit perspective. When you opt for payments to automatically come out of your bank account each month, the odds of you accidentally missing a payment goes down. This can protect you from late payments that might damage your credit reports and scores.

Choose the shortest loan term

The term of your loan, also called the repayment period, impacts the amount of money you pay back to your lender each month. When you select a shorter loan term, it typically translates to a higher monthly payment.

You shouldn’t commit to a larger monthly payment than you can afford. Yet there can be a big benefit to choosing a shorter loan term for private student loans if your budget can support it. Loans with shorter repayment periods often feature lower interest rates.

Ask about discounts

In addition to autopay discounts, some lenders offer other opportunities to save money on your private student loans. For example, you might come across interest rate reductions such as:

  • Loyalty discounts when you have (or open) a bank account with the same lender.
  • Repeat customer discounts.
  • On-time payment discounts (after you make a certain number of timely payments).
  • Interest-only payment discounts.
  • Special promotional discounts designed to attract new customers.

The size of these rate discounts can differ from lender to lender, if discounts are offered at all. But if you can find and stack multiple rate discounts together, you may be able to amplify your savings.

The bottom line

Securing a lower interest rate on a loan might not seem all that important in the abstract. Yet before you commit to an education loan that could easily take several decades to pay off, it’s critical to make sure that you’re securing the best deal available. Even a marginally better interest rate could add up to a significant savings over the life of your loan — perhaps even thousands of dollars.

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Written by
Michelle Black
Contributing writer
Michelle Lambright Black is a credit expert with over 19 years of experience, a freelance writer and a certified credit expert witness. In addition to writing for Bankrate, Michelle's work is featured with numerous publications including FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest, among others.
Edited by
Student loans editor