- All of MPOWER’s scholarship programs are available to students who qualify under “Deferred Action for Childhood Arrivals” (DACA). Consider applying if you have DACA status.
What Is a Good Interest Rate, How Much Should You Borrow, and How Long Should It Take to Pay Back?
A “good interest rate” will vary according to your situation. If you do not have collateral or a cosigner, 12 percent is a good interest rate. But if you do, you can probably get a much lower interest rate. Regardless, you should always try to secure the lowest interest rate possible.
A longer repayment period is generally better, too, as this will keep your monthly payments lower; however, you will want to pay off the loan early if you find the means. You might be able to save hundreds or thousands of dollars in interest payments.
- Principal: a portion of the actual amount borrowed
- Interest: the money the lender earns from the loan
The first month, your interest payment will be $200 USD and your principal repayment will be $ USD. The next month, your interest payment will be slightly lower: Now the 12 percent is calculated based on the remaining balance of $19, USD.
This trend continues throughout the life of the loan. At the beginning of the loan, you are paying mostly interest; at the end, you are paying mostly principal.
At the end of 36 months, with a fixed monthly loan payment of $ USD, you will have paid off $6, USD in interest. If you pay off the remaining principal balance of $16 payday loans in Michigan, USD, you will not have to make any more payments.
But if you continue on your current schedule, you will pay an additional $7, USD in interest as you pay off those $ USD increments!
In three years, you will have paid back $26, USD on your $20,000 USD student loan. For many people, that’s a worthwhile amount to obtain an education in the United States. But in 10 years, you will have paid back $34, USD. That is a significantly higher amount.
The key to understanding loan options is to focus on what your monthly payments will be-in school and after you graduate-and ask yourself if you will be able to afford these payments. One note of caution, though: if a lender is offering a variable interest rate, you will not be able to estimate future payments.
- the benchmark
- the spread
Lenders usually peg the “benchmark” to an index, such as the London Interbank Offered Rate (LIBOR). Your “spread” might be 7 percent. In this case, your variable interest rate would be quoted as “LIBOR + 7%.” The means if LIBOR is 4 percent, then your interest rate is 11 percent-which might not sound bad, compared to a fixed rate of 12 percent. But if LIBOR shoots up to 7 percent, your interest rate will be 14 percent!
On the other hand, a fixed rate means you will always pay the same interest rate, so you will know exactly what your loan payments will be. That’s why we recommend a fixed-interest rate loan (which is the only kind of loan we provide).
What Is the Most Important Advice for International Students Seeking Financial Aid?
Maureen: The most important piece of advice is simply to understand what you are agreeing to before you commit to any financial arrangements. Be realistic about your abilities to pay back a loan, and make sure that you do everything possible to earn yourself a scholarship that can save you thousands of dollars.