You may have heard the term “competitive interest rates” while browsing around for a good student loan option. But what exactly makes an interest rate competitive?
Interest Rate Percentage
The percentage of the rate isn’t the only factor that makes a rate competitive. If Company A offers a loan with a 2.65% rate, and Company B offers one with 3.44%, it doesn’t necessarily mean you should pick Company A’s loan, even though their rate (and therefore the total amount you have to pay back) is lower.
Fixed or Variable Rates
When taking out a loan, you will have to chose if you want a variable or fixed rate. In essence, fixed rates will be set at one constant rate that will not change. Variable rates can raise or lower depending on the markets. It can be a gamble, but some prefer the chance at lower rates even at the risk of eventually getting higher.
One factor to consider is the loan’s term—or how long you have to pay back the loan. It could be a 5, 10, 15, or even 20 year long term. Different terms work better for different people, depending on how quickly they want to pay back their loans versus how much they make in their post-graduation job.
Repayment Plan Flexibility
Some lenders are rigid, and others are more flexible. When it comes to repayment options, sometimes flexibility can be more important than the rate percentage itself—again, this will depend on the individual borrower’s preference and circumstances.
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