Should I Get A Low APR Loan to Pay Off My Student Debt?

Education has become an expensive affair. People need external financial help to manage the costs of studying in a good university or college. This is where a student loan enters the picture, and it often comes with a considerable cost.

Generally, student loans are low-cost and borrower-friendly loans that come with a fixed monthly interest rate. Some lenders might charge a floating interest rate. In some cases, the Government agrees on charging interest at a subsidized rate of interest, depending on the financial health of the student.

Student loans have become an important part of an individual’s life. However, the non-payment of your dues can have severe consequences and lead you into a messy debt-trap. You must take the necessary steps in advance to avoid yourself from going into default.

Various options are available to help you out in such a situation, but let us first know about the student loan options.

Types of Student Loans

Various student loan options are available to fund your education:

Perkins Loans

These loans are only given out to the people having a low income. It is also known as a need-based loan and has relatively low-interest rates.

Stafford Loans

These loans are available for everyone and come with subsidized interest rates. Different lenders have different criteria to assess the eligibility of the applicants.

PLUS Loans

These loans are available for parents who want to fund the education of their children. You must have good credit ratings for this loan and cannot opt for in-school deferment options. Regular monthly payments have to be made right after the disbursal of funds.

Consolidation Loans

These loans bring together the benefits of multiple loans to a single loan. Also, the repayment options are regular and straightforward.

Repaying Student Loans

Repaying loans can be a tricky business. If you land a job after graduation, then you can pay off your loans quite easily. But in a real-life scenario, finding a job is not that easy.

If the payment towards your loan is not made timely, you are most likely to go into default. This comes with different charges, including a late fee, which can severely impact your credit score.

As a borrower, if you do not make any payment towards your student loan for the next 120 days (private loans) and 360 days (federal loans), you will go into default.

Will a low APR loan help you in paying off your student debt?

While paying back your student loans, you might stumble upon a lot of solutions. You might want to avail a personal loan with a low APR to help your cause. To do that, you should first know what a personal loan involves.

Properties of A Personal Loan

1. These loans are unsecured, so you don’t need to mortgage any property to avail these loans.
2. The repayment tenure is quite small.
3. Your eligibility would be checked before approval of the loan.
4. You will be subject to credit check uk.
5. Can be availed by citizens who lie in the age group of 18-70.

Advantages and Disadvantages of a Loan with Low APR

Every option comes with some pros and cons. It becomes important to weigh all your options before deciding. These factors can help you determine if you should take a loan to pay off your student debt.

Advantages

1. By taking a personal loan, your student loan would be consolidated to small monthly payments. This will make paying off your student debt more manageable.
2. These loans come with a fixed interest rate, which means the interest amount won’t change with the market.
3. Low APR loans have a fixed repayment tenure, which makes repayments much easier.
4. With loans, the loan co-signer could be released from your loan, providing him with necessary relief.

Disadvantages

1. Personal loans do not come with any tax benefits. Therefore, there is no deductible component in these loans. You will lose the tax benefits which come with student loans.
2. By taking a low APR loan, your federal protections on the student loan would no longer exist. Once you decide on taking a personal loan, there is no going back.
3. You can no longer avail borrower protection options like loan forbearance, loan forgiveness, or repayment using income-driven plans.
4. Personal loans have a fixed repayment structure. They do not come with income-driven plans.
5. A personal loan comes with a higher rate of interest as compared to student loans. Low APR loans have a minimum rate of 3.5% and can go up to 15%.
6. The application process can become difficult, as not all lenders provide the option to take a personal loan to waive off your student debt.
7. You will have to meet a lot of requirements in case you want to take the loan route.

Should You Take A Loan to Pay Off Your Student Loans?

You should try your best not to. Various options are available to help you with the repayments. These options are much cheaper and easier to manage.

Deferment

Some loans come with an in-school deferment option. With this feature, students can avoid paying the monthly principal and interest rate towards the loan while studying.

Federal Loans

One option that might help your cause is federal loan repayment plans. Some options will increase your repayment tenure to 10 years.

Income-Driven Repayment Plan

If your monthly income is not high, income-driven plans make repayments easy. They enable you to manage your expenses well and free up cash so that you can easily fund your monthly payments.

Student Loan Forbearance

With a forbearance, you can delay your payments up to the next three years. Also, various federal loan saving programmes can you help you out.

Refinancing

Before taking a personal loan, consider refinancing your student loans to a new loan. This will help you in saving money as this comes with a lower interest rate.

Conclusion

Personal loans get easy approvals as they are unsecured. You can borrow this money for any purpose, including the payment of your student loans.

However, while it’s true that low apr loans can help you if you have no other way out, it is better to try other attractive options before going the personal loan way.