As with any loan, it’s important to understand what kind of financial commitment you can reasonably take on before you select the right student loan for you. That’s where loan prequalification comes in.
The First Step – What is Prequalification?
Credit prequalification is a way for lenders to assess whether you, as the borrower, are financially able to take on the responsibility. They want to know if you’ll pay the amount due on time without conducting a full review.
Once this is determined, the lender will give feedback to potential borrowers, such as whether they may be approved and possible interest rates.
What To Expect with Loan Prequalification
Expedited Credit Approval
With credit prequalification, borrowers may be able to significantly expedite the approval process. By providing essential information like credit history, you may be able to receive your initial assessment in seconds.
Customized Interest Rates
If you’re pre-approved (or pre-qualified), you’ll be given an expected interest rate range. Keep in mind that with most lenders, this is simply an estimate. You won’t know the exact range until after you apply for a student loan. By simply filling out a few crucial pieces of paperwork, you’ll be able to see your actual rates and assess your options.
Remember: you do not have to take all the aid that’s offered to you. You should only take what you need and borrow responsibly.
Considered a “soft inquiry” on your credit score
There’s a crucial distinction between “hard” and “soft” inquiries on your credit score. A hard inquiry generally requires your consent and occurs when you’re applying for a line of credit. These hard inquiries will show up on your credit report.
For private loans, prequalification is considered a soft inquiry and will not affect your credit. Once you accept the loan, the inquiry will be reflected as a “hard” inquiry on your credit score.
Please note that while prequalification doesn’t affect it, applying for a loan will show up on your report.
Do I need a cosigner?
What’s a private student loan cosigner?
When a loan applicant does not have significant credit history, private student loan lenders often require borrowers to apply with a cosigner. When this occurs, the lender has more assurance that you will repay the loan. Not only does this give you better odds of being approved for a private loan, but you may also be approved at a lower interest rate.
Whom Should You Ask?
Although parents are often the first pick, you are not required to have a parent as a cosigner. In fact, 26% of cosigners are not parents. Cosigners can also be a spouse, relative, guardian, or friend.
Regardless of whom you choose as a cosigner, you both must realize you’re equally responsible for the repayment of the loan. Make sure you not only trust them, but they trust you.
Another important thing to remember is that only one person can be a cosigner of your loan. So, if both of your parents want to do it, you can only choose one of them.
Can a cosigner be released?
Most likely, yes. Most student loan lenders have a cosigner release option. You can apply for this option when you make the specified number of payments (set forth by your lender), meet the income and credit requirements, and submit an official cosigner release form (either online or otherwise). To find out how to get the application, contact your lender.