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May 24

General Terms about Loans

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1.6.1  Loan Discounts

  *   Discounts:
 A loan discount is a way to obtain more borrowers, giving them more “opportunities” to pay their loans.

 Generally, loan discounts offer an interest rate reduction because you have a monthly direct debit from your account; besides they could offer additional discounts because you make your monthly payments on time, and consecutive repayments. Some general discounts, besides these reductions, include:

  -   Direct Debit; from 0.25% to 2.5% rate reductions.
  -   On-time repayments; from 1% to 3%.
  -   Graduation Credits; from $250 to $750.
  -   No payments; from 5 to 6.
  *   Warnings:
 Pay on-time is hard, just for one single moth with a late repay and you will lose these benefits permanently.
 Repay rebates, some rebates and discounts require the repayment of the discount.
 Minimum balances, in order to have discounts, the most important for you is to have a minimum loan balance.
  *   Tips for Discounts:
 Be able and realistic doing all your payments on time
 Concentrate on finding the most important loan discounts, avoiding losing them, such as direct debit, fee rebates, interest rates and principal reductions.
 Choose those repayments that involve a shorter time period.
 Ask about the minimum balance to obtain a discount.
 Ensure you are signing up for the direct debit of your monthly payments with your bank.
 Keep update your file information to not let your grace period expire.
 Be sure to read all the requirements including if you consolidate your loan, you will have to pay the discount.
 Inform yourself about how many days is considered “on time”.
 Find out if there are other additional discounts for borrowers from your school.
 Be sure to read all the fine print.
1.6.2  Cost of Interest
 It is really important for you always know about interests, if you do not have much experience with debts and loans you will not see how much it will cost you.

 If you are able to estimate how much to pay, you will be able to calculate your costs knowing if it is a convenient loan or not for you.

 When you are able to understand the word “interest”, you will not feel it higher than your emotional level. Besides, once you see actual loan costs, total interest paid, and monthly payments, you will be more realistic and you will take better decisions refer to the amounts.

 Here is a way to calculate the interest on a loan that yields a total interest paid:
(B*Y*I) / 2
B = Loan Balance
I = Interest Rate
Y = Length of the loan term in years

1.6.3  Repayment Plans
 There are many ways to repay your loans but here, you will find six which are the better.

 The repayments available for student loans are:
  -   Standard Repayments
  -   Extended Repayments
  -   Graduated Repayments
  -   Income Contingent Repayments
  -   Income Sensitive Repayments
  -   Income Based Repayments
1.6.4  Loan exonerations
 Mostly it is given for federal loans and just under some specific circumstances, in order to annul all or part of the loan. Generally, this information will be provided by the Human Resource Manager.

 Some of the requirements are:
  -   Volunteer work.
  -   Military service.
  -   Teach or practice medicine in communities.
  -   Practice Legal studies in communities.
  -   Taxability.
  -   Federal Loan Programs.
  -   Give some specific and personal reason.

1.6.5  Student Loan Defaults

  *   What does it means?
 If you are thinking about in default your student loan, this information will be useful guiding you what are the disadvantages you will have to take and how to avoid them. More than 75% of the students who default, fail in completing their studies.

 Once you get the financial aid you must start paying your monthly amounts, even if you did not graduate, you could not find a job or did not like your school.

 Only if you do not make any payment for 270 days or arranging an agreement with your lender you will be consider in default, and this means you could have to take some consequences.
  *   What are the consequences?
 Still owe the full amount of the borrowed loan.
 Pay for the associated cost including court and fees, if these would be necessary.
 Be sued for the complete loan amount.
 May be stopped your federal and state taxes.
 Part of your Social Security benefit payments would be retained.
 Record in your credit record these defaults, making difficult to obtain other loans (autos, mortgage, credit cards), including to find a job.
 No more federal financial aid until you repay, including the interests benefits.
 Choose as ineligible for deferments.
  *   How to prevent a default?
 While less you will borrow, less you will have to pay.
 Assume your options and responsibilities while you take a loan.
 Make a list of your loans.
 Pay on time.
 Keep update your information, any change would affect the repayments.
 Before you decide to do a default, think about in deferring your loan asking about what options you have.
 Once you ask for a deferment, keep paying your monthly repayments, until the lender accept your petition. Otherwise, you will be into default, and any approbation.
 If you start having problems with your payments, ask for other options (extended, graduated, income sensitive, income repayment, and income based repayments).
 Think about consolidation loans, in order to make easier your repayments, increasing your terms and decreasing your monthly payments.
 Care for your letters, sent mails, cancelled checks, received mails, promissory notes, notices of disbursement, etc.
 Among a federal and private loan, be more careful with the federal one due to its penalties.

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