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Top 5 Things to Consider When Making a University Loan Comparison
With the cost of education higher than ever, it’s commonplace for people in the United Kingdom and elsewhere to rely on educational loans to pay for their classes. These loans can have a severe effect on financial stability later on. Doing a good loan comparison before you sign an agreement can save you hundreds of pounds, especially if you’re thorough about examining the following elements.
Credit Check
Depending on where you go for your university loan, you may be subject to a credit check. If you are younger, this can be problematic, because most students who are just starting out on their own haven’t established much of a credit history. You might need your parents or someone else to cosign for you, which makes the loan more complicated.
Interest
You probably know that you should try to get the student loan that has the lowest rate of interest, but there are other things to consider as you compare loan options. For instance, does interest start to immediately accrue, or are the calculations delayed until you graduate? These kinds of elements have a big effect on your ability to pay back the loan and how long you’ll take to get out of debt.
Payments
Similar to interest, you will want to compare when you must start making payments. You should look at the amount you would need to pay every month and make a determination about whether that figure is reasonably within your budget. Your goal should be to find a payment level that allows you to pay down your debt while still living a somewhat comfortable life. Keep in mind that, in general, the longer your loan term, the more you’ll usually pay in interest, but the lower your monthly payments typically are. Compare how much of your payment gets applied to the principle balance, as well as what happens to the loan in the event you become disabled.
Another thing to consider under payments when you’re looking at different loans is whether the lender allows forbearance or deferment. These two options basically allow you to pause paying down the debt. Most people do not want to think about needing to do this, but the reality is that, if you get into financial hardships down the road, you might not be able to meet all your debt obligations, including your student loans. In this circumstance, having the option for some breathing room can be good.
Benefits
Some lenders that provide school loans offer additional benefits as part of the loan agreement. For example, they might offer you perks such taking a specified amount off your balance (essentially giving you a discount) if you make a set number of payments on time. Others might give you a slightly better rate of interest if you agree to conditions such as working online or setting up automatic payments.
Loan Limit Amounts
Loan limits are important to look at when you are comparing sources for university funding because they can mean you need to use multiple lenders to cover your costs. Ultimately, this makes paying for your schooling more complex, but several smaller loans might be worth this complexity if you are able to get lower rates of interest. As an example of loan limits, in England, you can get a maintenance loan from the government of up to £4,418 for the 2014 school year if you are living at home, whereas the amount increases to £6,600 if you want to study abroad. Remember, just because you are eligible to borrow a certain amount doesn’t mean you must do so–live within your means and only borrow what you really need to cover your costs.
Conclusion
A thorough loan comparison ensures you get the best deal and fit when you must borrow to cover the cost of university. You should look at elements such as the necessity for a credit check, the way the lender treats interest, payment amounts and options and benefits such as routine-payment discounts. The cap on the loan amount is another big factor. As you go through the comparison process, don’t be surprised if getting the information you need takes time. It helps to start looking for providers well before the semester or school year is scheduled to start.
Examples And Summary Of The Loan Modification Process (Page 1 of 2)
If you are trying to stop foreclosure, or have a mortgage payment that is too much, then you’ve probably thought about getting a mortgage modification. A mortgage modification is when the terms of a loan are permanently changed to allow a reduced payment.
The reduced payment is accomplished by either reducing the interest rate, lengthening the term, or lowering the balance to be more in line with the current market value. In most cases, a combination of all three of these choices are used to reduce the mortgage payment. There are other interesting options to reduce a payment with a modification too, but they all center around the term of the mortgage, the payoff, and/or the interest rate.
Here is an uncomplicated example of how a mortgage modification can lessen the payment, using each of the three options above.
Method 1 Dropping the interest rate
Lets assume the mortgage balance is $200,000 and the current interest rate is 7.75% and the payment amount is $1,750. Lets also assume this borrower has 20 years left on a 30 year loan. The borrower can no longer afford this payment because of a loss of income. They can afford a $1,250 payment, so the bank agrees to reduce the interest rate to a fixed rate of 4.25% for the remaining life of the mortgage. This will give them a payment of $1,240, without the need to lengthen the term of the loan or lower the payoff amount..
Method 2 lengthening the term of the loan
Lets use the same example above, only this time, we’ll assume the homeowner can afford a $1,500 payment. The loan amount will still be $200K and the interest rate will still be 7.75%. But in this case, the investor was not willing to reduce the interest rate. This happens very often, because the investors on the loan are not willing to accept a reduced rate. In this case, extending the length of the mortgage will make the payment affordable again and the investors will keep their 7.75% interest rate. The $200,000 balance is re-amortized over a 30 year period to get a reduced payment of $1,430. Everyone is happy because the foreclosure was prevented and the new payment is affordable.
Method 3 Dropping the payoff amount
In order for a payoff amount to be reduced, the value of the house must be less than the payoff amount. In a few cases, lenders will reduce the payoff amount without this stipulation, but it’s highly doubtful. To get the payoff amount reduced, you must give documentation to the lender that foreclosing on the house will cost more than dropping the amount owed to make the loan affordable again.
In this case, we’ll assume the home’s current market value has been established at $179,000, but the payoff is still $200,000. If the bank forecloses on the property and tried to re-list it, their estimated loses will be 30% of the home’s value. So after foreclosing on the property and re-selling, they will receive approximately $125,000, if they are lucky. Most lenders expect to lose 30%-60% on every foreclosure property, so this amount is being very generous.