What to Know About Using a Personal Loan to Pay Off a Student Loan
Staring at the mound of student loan you have might make your head spin. Instead of slowly making monthly payments on it, you had the idea of taking out a personal, unsecured loan to pay it off. Understanding when this action is the right one to take involves thoroughly analyzing your financial situation and the two types of loans.
The Interest Rates
Comparing the interest rates of your student loan to the personal loan is of utmost importance. If you have $70,000 in student loans, you will still need a $70,000 personal loan to pay it off entirely. When the interest rate is higher on the personal loan than on the student loan, the former option doesn't make sense for people who still plan to make monthly payments. You will end up paying more money on the loan over time.
The Allowed Payment Period
While paying back your student loan is irritating, you also likely have a lengthy period of time in which to do so. Find out how long you would have to pay the personal loan back. In the hypothetical situation described above, you could end up having only a couple of years to pay back $70,000 instead of well over a decade. Reviewing your personal budget and income is crucial before deciding to go into this type of plan.
If You Qualify
When you've decided that the interest rates and the pay period could work for you, you need to qualify for the loan. People who cannot qualify for secured loans may be able to find another alternative with this plan. The exact qualification stipulations will depend upon the specific loan provider. You will likely need to have a certain credit score to qualify for the loan.
For Debt Consolidation Purposes
If you have other types of debt, you might want to consolidate it all into one loan and make one lower monthly payment. For example, you could take out a personal loan that would cover the sum of your student loan and your credit card debt. Taking all of the financial factors into account, you could end up paying less in interest over time with this method. This type of personal loan can help you to get out of debt faster and to see your credit scores climb.
Using a personal loan to pay for a student loan is a smart idea when you understand all of the terms, have researched the particular agreement and need to find a better way to eliminate all of the debt in your life.