The Basics Of Borrowing Parker CO

If you're a current or future college student, chances are good that you're considering a student loan. Before you make any decisions, it pays to understand the basic principles behind borrowing.

All loans consist of three components: The interest rate, security component and term.

The Interest Rate

The interest rate is the lender's charge for the use of its money. The interest rate is usually a small percentage of the amount loaned.

There are two different types of interest rates: fixed or variable (a.k.a. adjustable).

Fixed rates are just that: fixed and unchanging. If your fixed interest rate is 7 percent, it will be 7 percent for the life of the loan.

Variable rates can change over time and are usually based on a standard market rate, such as the prime interest rate (which is the lowest rate of interest a bank can provide at a given time and place, offered to preferred borrowers). For instance, you may take out a loan with a variable rate at "prime +2." This means that you'll pay two percent more than the prime rate, regardless of what it is.

Interest rates for popular student loan programs like Stafford and Perkins Loans have low interest rates. Plus, the government pays the interest on subsidized Stafford Loans and Perkins Loans while you're in school.

The Security Component

All loans are either secured or unsecured. This refers to whether you are putting up assets, often referred to as collateral, to guarantee your loan. ...