Though it is a strategy unknown by many, you can use low-interest personal loans to pay off your student loans.
While this option is not as popular as other repayment methods, since it involves some risks, it represents another option for those struggling to repay their student loans.
If this sounds like you, here are the things to consider before taking out a low-interest personal loan to pay off your student loans.
Low-Interest Personal Loans: Repaying Student Loans
What are Personal Loans?
Personal loans are unsecured loans which you may take out for personal reasons.
Unsecured loans are loans that do not depend on collateral property.
This means that you are not required to place assets like your house or car on the line to support the loan.
Instead, all you need is the contract between you and the lender.
When securing such a loan, lenders look for the capacity of the individual to repay the loan rather than the purpose of taking out such loan.
That means that there’s no stigma around using a personal loan to pay off a student loan.
Moreover, these loans usually have lower interest rates than those of student loans.
A lot of borrowers have successfully secured a personal loan to pay off their student loans.
Below we explain how you can do the same.
Are Low-Interest Personal Loans Right for You?
1. Keep Track of Fewer Loans
Because your personal loan will pay off a significant amount of student loan debt, you will be left with fewer loans to keep track of.
Sometimes a personal loan can even cover all existing student loans, leaving you with just the personal loan to pay off.
This advantage is akin to student loan consolidation.
However, the two strategies differ in that, through personal loans, you are not subject to federal student loan terms.
2. Lower Interest
While personal loans usually have lower interest rates, this is not true in all cases.
It all boils down to your profile as a borrower to your lender.
However, even if the personal loan you end up getting has a slightly higher interest rate than your student loans, it still has the advantage of being a singular interest rate to keep track of.
Not having to worry about varying monthly payments with different interest rates can speed up the process of paying off student loans.
3. Flexible Terms
Fortunately, personal loans are characterized by very flexible negotiating between you and your lender.
Unlike student loans, you may be able to set a required monthly payment and a repayment period that you are comfortable with.
Thus, having paid off student loans, you are left with a debt which is more manageable.
Also, among the implicit terms of personal loans is that you may be discharged from the loan through bankruptcy.
This is not applicable to student loans.
Although bankruptcy is not ideal, it is a possibility borrowers constantly grapple with.
It is comforting to know, then, that this state frees you from your personal loan.
Other Concerns
If you are planning to approach a bank to take personal loan, consider these five points before you do so: https://t.co/l7edyXVXHU
— Amruta Ugle (@UgleAmruta) November 2, 2017
The real challenge of low-interest personal loans lies in convincing a lender to lend you the amount you need.
Since it is an unsecured loan, the only thing lenders have to base their decision off of are your credit history and responsibility as a borrower and consumer.
Therefore, it’s best to make sure that you have good credit before taking out a personal loan.
Finally, using a personal loan to pay off student loans means giving up borrower protection benefits.
These benefits include deferment, forbearance, forgiveness, and repayment plans.
For some, this is not an issue because the personal loan already takes care of a substantial amount of the debt.
However, if you find that you need these forms of protection, you might want to reconsider.
Watch this video from The Washington Post for more perspective on paying off student loans:
If you are confident about securing a personal loan and repaying it in time, then it may be the right choice to help you pay off your student loans fast.
After all, every borrower knows how crippling student loans can be.
Despite their unpopularity, using low-interest personal loans to pay off student loans might just be the repayment method to free you from debt.
What are your thoughts on using personal loans to pay off student loans? Let us know in the comments section below.
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