A student loan helps students pay their higher education tuition fees and living expenses while pursuing higher education. Federal loans are given by the Federal government while Private student loan is given by private financial institutions like a bank, a credit union, and other lending institutions. Both loans are different, and they have their advantage and disadvantages when compared. Here is a comparison that every student needs to know regarding the loans.
Federal student loans
Loan repayment period
Students start paying their federal loan for students [https://studentaid.ed.gov/sa/types/loans] after they complete their higher education. In case they encounter difficulty meeting the loan repayment terms, the federal government allows them to temporarily defer the repayment period or lower the installments to an amount that the student can manage to pay.
The federal student loan has many repayment options which allow students to choose a plan that suits their financial ability. Furthermore, students who pay their loan early do not pay an early payment penalty.
Federal student loans have a fixed interest rate. A fixed interest rate is that which does not change over a given time. The interest rate for the Federal student loan is lower compared to that of private student loans and other loans.
Undergraduate’s Federal Student loans are charged a fixed interest rate of 3.76%. Student loans for graduates and professional students are charged an interest rate of 5.31% and 6.31% depending on the type of loan for students [https://studentaid.ed.gov/sa/types/loans/interest-rates].
Advantage to financially needy students
The Federal student loan is an ideal solution for students from economically challenged backgrounds. The students are given a subsidized Federal loan whereby the Federal government reimburses the interest. This makes loan repayment easy.
The government does not use a student’s credit history to approve the Federal student loan. However, the loan has an impact on the student’s credit score. Therefore, students who pay their loan on time stand a chance to an improved credit score while those who default or pay their loan late will have a lowered credit score.
Federal student loans have a loan limit which dictates the maximum amount a student can borrow. For this reason, students whose spending exceeds the loan limit are required to supplement the loan with alternative funding sources.
Private Student Loans
Unlike Federal student loans, the loan repayment period may start while the student is still in school. The repayment plan depends on the lender. Therefore students should consult with their lender to know the repayment options that exist. Some lenders can also charge a prepayment penalty fee.
A private student loan’s interest rate differs depending on lenders. The loans have a variable interest rate which can exceed 18%. Variable interest rates increase the amount one pays, a factor that can make loan repayment difficult.
Implications for financially needy students
Private student lenders do not have individual plans that cater to needy students. It implies that the loans are not subsidized, and a student has to repay back the loan in full.
Just like any loan, private financial institutions run a background check on a student’s credit score before the lender approves a loan. Students with low credit score stand a risk of being denied a loan. If a lender decides to give students with poor credit score a loan, the loan will have a relatively high interest rate and strict loan repayment terms.
The advantage with a private student loan is that students have the freedom to borrow as much as their credit worthiness can allow. Students with a good credit history and whose spending is higher than what the Federal student loan caters for can take a private loan for students [http://www.consumerfinance.gov/askcfpb/545/what-are-main-differences-between-federal-student-loans-and-private-student-loans.html] to fund their studies.
Financial experts advise students to finance their higher education with federal student loans before they consider taking a private student loan. It is because Federal student loans offer student friendly protections like flexible repayment and forgiveness plans. Private student loans are significant to those students who need more money to fund their studies. A private loan may be a good choice for students’ who are learning in institutions that are not in the Title IV student aid funds category.
Every driver wants to save money on their car insurance. One way drivers can stay safer on the road is all the safety technology that’s available with many new vehicles. Many of these safety features make car accidents less likely, something that you’d think insurance companies would take into consideration.
But does this safety technology have any sort of impact on your insurance premiums? The Zebra compared car insurance discounts offered by several different companies to find out.
The Safety Technology
Rear View Cameras – The car provides the driver with a camera showing what is behind the car while it’s in reverse.
Night Vision Devices – The car detects objects beyond the view of the headlights, such as pedestrians and animals, and alerts the driver by swiveling the headlights.
Lane Departure Warning Device – The car provides an audible alert if the driver drifts into another lane.
Heads-Up Displays – The car projects information on a transparent screen in front of your windshield, so you can keep your eyes on the road while viewing GPS maps or another displays.
Driver Alertness Monitoring Devices – The car monitors the driver’s eyes and alerts them via flashing lights and audible alerts if the driver isn’t aware of a hazard ahead.
Collision Preparation Systems – The car detects collision dangers and either alerts the driver, brakes, or performs collision avoidance by steering away from dangers.
Blind Spot Warning Devices – The car warns the driver before switching lanes if there is another car in their blind spot.
Electronic Stability Controls – The car detects and reduces skidding to keep the vehicle stable.
Effects on Insurance Rates
The Zebra found that the national average auto insurance premium was $1,323 per year. Its analysis included the top 15 auto insurance companies in every state. This included anywhere from 70 to 99 percent of each state’s insurance companies, and all the major national carriers were part of the study.
Somewhat surprisingly, safety technology had a minimal if any effect on insurance premiums. The only safety device that reduced the average insurance premium was electronic stability control, and even that only led to a $5 average discount, bringing the average annual premium down to $1,318. None of the other eight safety features lowered the average from $1,323 at all. This is despite that fact that seven of the nine technologies have proven their value in reducing crashes according to studies performed by the National Highway Traffic Safety Administration, the American Automobile Association, and the Insurance Institute for Highway Safety. The only technologies that haven’t proven value in terms of safety are heads-up displays and night vision devices.
The Zebra also looked at whether anti-theft devices led to lower insurance premiums. The results were similarly underwhelming. Passive disabling devices knocked $11 per year off the average premium amount, tracking devices lowered it $9, active disabling devices lowered it $7, and audible alarms resulted in a $6 average discount. Consumer Reports ran a similar analysis into the effect anti-theft devices had on insurance premiums and had the same results.
The Reason for the Results
Why don’t insurance companies offer greater discounts for safety and anti-theft technology? One reason is that just because the vehicle has this technology doesn’t mean the driver is actually using it. Drivers can and do disable certain features if they don’t like them. Natural disasters have also been costing insurance companies quite a bit of money, so they’re looking for ways to save money, not cut customers’ premiums.
Even if an insurance company does offer discounts for these sorts of devices, keep in mind that it only applies to the part of the policy relevant to that device. For example, if you have comprehensive coverage that covers you in the event of a stolen vehicle, then an anti-theft device can lower that part of your premium. But if you only have liability insurance, then it won’t matter.
Right now, safety technology doesn’t have a significant effect on your car insurance premium. However, it still helps you stay safe on the roads, which is more important anyway.
Taking out an auto loan is a quintessential step to purchasing a new or used vehicle. Without a loan, it can be practically impossible to get behind the wheel and have an automobile you can rely on without going into debt. However, there may come a time when auto loan refinancing makes sense. Refinancing an auto loan is a lot like refinancing a home as you will have to go through the same application and approval process to obtain a new loan. Your credit score, debts and financial standing will be considered when applying through a financial institution.
Here are five of the main scenarios you might face that would warrant auto refinancing:
1. Interest Rates Dropped
At the current moment, auto loan interest rates are at an all-time low. This is a staggering change from the once-extortionate rates drivers became accustomed to paying for. In fact, rates have gone down from a whopping 6.04 percent to 4.47 percent in only a year’s time. Rates continue to decline, allowing car owners to better afford their vehicles. After all, when your interest rate is high, most of your payments are going toward paying the interest. Refinancing can lock you into a loan agreement at a lower rate, reducing the amount you pay each month.
2. Your Credit Score Has Changed
If you purchased your vehicle when you had a poor credit score, it’s obvious your rate would be as high as it could possibly be to protect the lender. If your FICO score has gone up since the time you bought your car, you can refinance to get a rate specific to someone who has good or excellent credit. Checking your score is totally free and recommended about once each year. If you think your score has gone up but you don’t know for sure, use companies like Credit Karma or FICO to check those numbers.
3. You’re Using a Bad Company
Some auto loan companies just charge hefty rates and fees to their customers. A bad loan company may charge the same interest rate someone with horrible credit would get even if you have an excellent score; this is just the way they do things to bring in as much profit as possible. Changing loan providers is one reason to refinance and can save you thousands each year if you get locked into a better rate.
4. You Need to Lengthen the Term to Reduce Payments
The average car loan is for a term lasting about five years. If you’ve been paying your car off for two or three years and still can’t seem to get over the hefty payments, you can refinance to lengthen the term. While this may not be advantageous for future hurdles, such as a situation where you’re still paying for a loan when the car is no longer running, it can substantially reduce your monthly payments.
5. You Need to Change a Co-Signer on the Loan
Refinancing allows you to add or eliminate a co-signer for personal or financial reasons. Let’s say your parents co-signed your loan four years ago and now you’re married and living on your own with your own set of unique responsibilities. This would be a prime prerequisite for refinancing in order to remove a co-signer. You might also want to add a co-signer onto the loan, such as a new spouse or relative who is helping to make loan payments.
In order to be successful with your auto refinancing, you need to be conscious of available loans, companies and current interest rates. Consider getting a fixed-rate as opposed to an adjustable one to avoid hikes to your premium. Be wary of companies that offer introductory rates that only increase after the first year or two. Have a clear understanding of what you want to obtain from the refinance so you are prepared for new payment costs and potential road blocks. If your credit score has taken a hit since applying for the loan, this could negatively affect your ability to refinance completely. While auto refinancing offers a number of benefits, it is obviously not the best choice for everyone and can be a lengthy and grueling process for some.
What is a Cash-out refinance? Imagine you have a mortgage of 200k and you haven’t paid 50k. With cash-out refinancing, you can refinance for more than you owe and get a refund as well as a lower interest rate. What we mean is, if you still owe 50k and you refinance it for 70k, you get a refund of 20k to spend and enjoy a lower interest rate on the mortgage than was previously charged.
Simply put, a cash-out refinancing is when an individual acquires a new loan to trade with the current mortgage. People usually do this to enjoy a better interest rate on the mortgage. It can be helpful in some situations while in others, one is better off without it.
Cash-out refinancing, however, is not to be mistaken with a home equity loan. A home equity loan is a separate loan from your mortgage. In most cases, it attracts a higher interest rate than cash-out refinancing. The other difference is that you pay a closing cost after refinancing your mortgage but on a home equity loan, this is not done. See examples of home equity loans here:
Everything comes with its merits and demerits. Some may consider cash-out refinancing a good option while others may view it as a bad option. If you are undecided, we will give you some pros and cons of cash-out refinancing for you to compare and contrast. In the end, you will be able to determine if they are for you or not.
Some advantages of cash-out financing.
With cash-out financing, you get more stable rates. Unlike other loans, such as home equity loans where interest rates can be adjusted at any time, cash-out financing is stable. People prefer this option because they are assured that as long as they pay in time, the rates will remain the same. This gives people a peace of mind as they won’t worry about having to pay more than they owe.
Other than the rates being stable, they are also relatively low. Like we said earlier, the interest rates of cash-out refinancing are usually lower than other loans. This means you can get more money at a lower cost. You also get a lot of money to cover expenses that need more money like school fees without considering student loans. Student loans usually have a high-interest rate compared to cash-out refinancing.
It also improves your debt profile. A bank can decide to convert a loan into a mortgage so that you can pay at a lower interest rate. This is great because you now pay less to borrow the same amount of financing. This is done through cash-out refinancing as well.
Some disadvantages of cash-out refinancing.
It puts your home at a greater risk. When you take a cash-out refinance, you are at a risk of owing more than your home is worth. This can happen whenever housing value goes down. Default rates on cash-out refinancing were seen to be higher than those on regular refinances according to federal sources.
Cash-out refinancing also contains some undesirable terms. People are often enticed by the lower interest rates without being notified of the other costs involved. Cash out refinancing rates are always higher than normal refinance at the marketplace. People fail to see this fact.
Acquiring a cash-out refinancing can be a long and expensive process. The process is almost similar to the first time you acquired the mortgage. You will need all those documents you use to get a loan. It will also cost you money since you will be expected to pay a closing cost. The closing cost’s amount can vary from one situation to another. It can run from hundreds to thousands of dollars since its value is determined solely by the lender.
Cash-out refinancing is not for everyone. While it could save your life in some cases, it can completely ruin it when the situation changes. The best way to make a wise decision is to do your research on it before you consider it. Check the current rates on cash-out refinancing to evaluate whether the terms are within your capabilities.
With this guideline, we hope that you are now more knowledgeable of what cash-out refinancing is and how it affects you as the borrower. We also hope that the knowledge will help you to invest wisely.
Millions of Americans live with ample debt, and they wonder how they can pay it off without taking out a new loan. For many Americans, the problem lies in not having the credit to apply for a loan to consolidate debt and bills. It’s a frustrating situation for those who haven’t the funds to pay down their debt, and it’s one many Americans know all too well. If you want to consolidate your debt and bills without taking out a loan, there are options. You can pay off your debts without requiring good credit or a new loan. There are even options for those who have debt, good credit, and still don’t want to take out a loan to pay their debts.
No Interest Credit Card
One way to avoid taking out a loan is to apply for a new credit card. If you have a good credit score, you can look into the various no-interest on balance transfer options available. Many card options allow consumers to transfer balances without paying interest on them for 12 to 15 months, but there are a few cards on the market that offer the same rates for as long as 18 months. There is one card that offers consumers a chance to transfer balances and pay no interest for as long as 21 months. Take this into consideration and see what you might get when you send in an application.
You must have good to excellent credit to apply for a card like this, and you must pay off the balance transfer before the 0% APR introductory period is over or interest does accrue. Your job is to pay off as much as you can as quickly as you can to help get out of debt quickly. Creating and sticking to a budget will help.
It’s not the most ideal solution, but it’s an option if you haven’t good credit and you’re already making late payments or missing them all together. Debt consolidation companies can help you seek help in paying off your debts, and they can do it with ease. Your job is to contact a debt consolidation company, and provide them with the amounts, creditors, and information of each debt you have.
The consolidation company then works with your creditors. Your job is to stop making payments to each creditor while the company discusses options with them. They work to settle each debt for less than is owed, and they work to make sure your repayment terms are acceptable. These creditors are under no obligation to work with any debt consolidation companies, but many will. Your only job from this point forward is to work with the company to follow the instructions given.
You’ll make a monthly payment to the debt consolidation company that’s put into an account so each creditor can be paid off when the account holds that much money. It’s a lengthy process that typically takes five years to complete, and it’s one you might consider when you’re down to your last hope.
Friends and Family
It’s still a loan, but it’s one that’s not nearly as devastating to your financial situation as a bank loan or debt consolidation. When you are desperate to pay off debt, you can ask for a loan from someone you love. They might give you the money and work out a repayment plan with you. They might not give you anything. It’s worth asking before you put your credit further in jeopardy. Friends and family might be willing to offer you a little financial help if it’s not much, but they might also be able to offer other help. They might know of a job that pays more you are an ideal candidate for. They might help you work through your debt by helping you create a budget.
Friends and family can help make you accountable for your actions, and that can help your finances tremendously. See what you can do in terms of your options. You do have options, and you can make sure you’re able to pay off your debt without taking out a loan.
There are several options for accessing the equity in your home for a large lump sum of cash. Two of the more common options are refinancing your mortgage or taking out a home equity loan. Both solutions can help you use your home’s equity for debt consolidation, financing education, home improvement, and almost anything else. There is no single right answer as to which option is best for your situation. The first step is understanding the major differences between these options and the pros and cons of each.
What is a Refinance?
Refinancing a mortgage involves taking out a new home loan to replace the existing one, usually with more favorable terms such as a lower interest rate or a shorter term. There are two popular types of refinances:
Why Choose a Cash-Out Refi?
- Standard refinance. With a standard refinance, also known as a rate-and-term refinance, the only terms that change with the new loan are the mortgage interest rate, the term of the loan, or both. For example, you may refinance a 30-year mortgage into a 15-year loan and/or get the rate reduced from 6% to 4%. Because you do not walk away with cash, you may be able to finance closing costs into the new balance.
- Cash-out refinance. A cash-out refinance is the option that allows you to access your home equity. With this loan solution, you may get a new loan term or a lower interest rate, but the defining feature is the amount you are borrowing increases. As you only owe the original amount still outstanding on your mortgage and closing costs, you can borrow more money against the equity in your home. For example, if you owe $100,000 on your existing loan and your home is now worth $210,000, you can refinance into a new loan at $210,000 and cash out the $110,000 in equity.
A cash-out refinance offers several benefits, especially when compared with a home equity loan:
- A cash-out refinance gives you a single monthly payment.
- The interest rate on a first mortgage (refinance) is usually lower than with a home equity loan
- If interest rates are lower than you are paying now, you can access your equity and lock into a lower rate
There are some drawbacks to this solution, however. The closing costs on a refinance are usually higher than with a home equity loan. Refinancing your mortgage can also cause you to “reset” your loan, which means the term starts over, unless you refinance into a loan with a lower term. For example, if you have 13 years remaining on a 30-year mortgage and refinance into a new 30-year mortgage, your loan now has 30 years left. There is also the potential that you will be unable to refinance into a lower rate. If mortgage rates have gone up since you got your current loan, you may need to lock into a much higher mortgage payment.
What is a Home Equity Loan?
A home equity loan is also known as a second mortgage. With this solution, you can borrow against the equity in your home and receive a lump sum of money that is paid back in fixed monthly installments for a period of time, usually 10 or 15 years. The payment on your home equity loan will be separate from your primary mortgage and it may or may not be from the same lender. As with a cash-out refinance, a home equity loan usually has a fixed interest rate for predictable payments.
Why Choose a Home Equity Loan?
There are several benefits to a home equity loan over a cash-out refinance:
- Closing costs tend to be lower with home equity loans than refinance loans
- You may be unable to get a lower interest rate or better terms on your primary mortgage. In this case, it may make more sense to finance the smaller loan amount (to access equity) with a second mortgage. Taking out a home equity loan of $50,000 at 6% while paying a primary mortgage of $200,000 at 3.75% is more cost-effective than refinancing $250,000 at 6%, as an example.
Despite these pros, remember that a home equity loan is likely to have a higher interest rate than a refinance loan. Don’t assume that borrowing the money on a second loan will protect against foreclosure, either; second mortgage lenders can also foreclose on the home if you default on payments down the road.