Private/alternative student loans are unsecured non-federal education loans from private commercial lending institutions for creditworthy borrowers. Private loans usually have higher interest rates than federal loans. However, the interest rates on these loans can be lower than conventional credit products such as personal loans and credit cards.
Before applying for a private loan, you should apply for federal aid, and should explore your federal student loan options. For most borrowers, the federal loans offer lower interest rates and overall financing costs. For students who complete the FAFSA as dependent students, your parents can borrow Federal Parent PLUS Loan, which are usually better than private loans. If you or your parents have an excellent credit rating, you should carefully compare the federal and private loan terms, because some private lenders offer better rates to applicants with great credit ratings.
As with all borrowing, you must carefully consider the private loan terms before borrowing them.
Some of the questions you should ask include:
Many different lenders offer private student loans. To find lenders, check with your bank or lending institution, or search the Web for “private student loans” or “alternative student loans.”