A College Loan With A Bad Credit Score And Without A Cosigner Can Be Expensive

When you have no credit history or a poor or bad credit history then finding a college loan might not be so easy. If however you can get somebody suitable to act as a cosigner and guarantee your loan repayment then this can certainly help a great deal in securing a loan.

College students usually have few if any credit cards, no car loans and very rarely have a home loan which means that they have little or no credit history against which to assess the risk in giving them a loan. Additionally, in those cases where students do have a credit history it is frequently relatively poor because, as with many of us when we are young, they have made some irresponsible decisions and overstretched themselves with the result that they ran into problems meeting their repayments.

Either way the absence of a credit history or a record of late payments and possibly even defaulting on loans will often place a student in a high risk category so far as the majority of lenders are concerned. This means that loan officers, including those making decision on behalf of the Federal student loans programs, will generally approach applications from students in this situation with caution. In many cases loan applications will be denied or, in some cases, loans will be granted but a high interest rate will be charged to make up for the risk and to compensate for higher default rates.

One way to counteract the absence of a credit history or a poor credit score is for students to have a cosigner for their loan application. In many cases this will be one of the student's parents and loan officers will look at the credit history of the parent when deciding whether to grant a loan.

In this case it is the parent's credit history which becomes the principal factor in deciding the interest rate to be charged and parents with a good history will typically get the best rates, while parents with low credit scores will usually pay a high rate. The difference could appear small at first sight but can in reality add up to a substantial sum over the standard 10 year loan repayment period.

For example, one popular loan program provides loans at an interest rate of 4% for borrowers with a good credit history rising to 6% for borrowers with a poorer but nevertheless acceptable record. The 2% variation might not appear to be much but could represent in excess of $5,000 over the life of a loan.

It is not at all uncommon nowadays for students to require as much as $100,000 to fund an undergraduate education and, even if interest is paid from the start and is not accumulated, interest at the present Stafford loan rate of 6.8% is in the region of $567 every month or $6,600 per year. Reducing that interest rate to 5%, which is the present rate for a Perkins loan, lowers these numbers to $417 and $4,820.

It also has to be born in mind that these figures assume that repayment begins immediately. It is however much more usual for repayment to be deferred until six months after college and this will increase these figures considerably.

Students who use a cosigner who has a superior credit record can not only improve their chances of getting a loan in the first place, but can also lower their total loan repayment very considerably.

TheStudentLoansCenter.com provides information on a range of topics including school loans that don't require a co-signer and no credit check alternative student loans