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Student Loans With No Credit Score And With No Cosigner Can Be Expensive

When you have no credit history or a poor or bad credit history then obtaining a student loan may be hard. However, if you can find a suitable person to act as a cosigner and to guarantee the repayment of your loan then this can certainly help you to secure a loan.

Most students usually have few if any credit cards, no car loans and seldom have a home loan so that they simply have little or no credit history against which to judge the risk in granted them a loan. Also, where students have a credit history it is frequently relatively poor because, like a lot of us when we are young, they have made some hasty decisions and overstretched themselves so that they ran into problems meeting their repayments.

Either way the lack of a credit history or problems with late repayments and perhaps defaulting on loans will normally place a student into a high risk category as far as a lot of lenders are concerned. As a consequence loan officers, including those responsible for making decision on behalf of the government's Federal student loans programs, will usually approach applications from students in this situation with care. Often loan applications will be denied or, in some cases, loans will be approved but a high interest rate will be charged to counterbalance the risk and to compensate for higher default rates.

One method of counteracting the lack of a credit history or a poor credit record is for students to have a cosigner on their application for a loan. In the majority of cases this will be a parent and loan officers will look at the credit history of the parent when deciding whether or not to grant a loan.

At the same time the parent's credit history becomes the principal factor in determining the interest rate to be charged and parents with a superior history will typically get the best rates, whilst parents with lower credit scores will usually pay a high rate. The difference may appear small at first glance but can in reality add up to a significant sum over the standard 10 year loan repayment period.

For example, one popular cosigner loan program grants loans at 4% for borrowers with a good credit history increasing to 6% for those with a poorer but still acceptable record. This 2% difference may not appear to be much but could amount to more than $5,000 over the life of a loan.

It is not unusual nowadays for students to need as much as $100,000 to fund an undergraduate education and, even if interest is paid from the start rather than being accumulated, interest at the present Stafford loan rate of 6.8% is almost $567 per month or $6,600 every year. Lowering that interest rate to 5%, which is the current rate for a need-based Perkins loan, reduces these numbers to $417 and $4,820.

It should also be remembered that these figures assume that repayment starts straight away. However, it is much more usual for students to defer repayment until six months after leaving college which is going to increase these figures greatly.

Borrowers who use a cosigner with a good credit record can not only improve their chances of obtaining a loan in the first place, but they can also lower their total loan repayment significantly.