Usually, when it comes to student loans, undergraduates with a bad credit history are treated very differently by most lenders and financial firms. If you are one such student looking for a quick money provision to fund your education, bear in mind that getting admission into a reputed academic institution of your choice is just not enough. If you have a poor credit-score, it is highly likely that you might have to face a lot of problems in getting the loan approved.
Needless to say, a poor score has a significant influence over the quality and availability of an education loan. However, before applying for it, it is very essential to know the following basic facts and rules underlying the special 'Bad Credit Student Loans'.
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1) Importance of Credit-Score
Needless to say, the quality and availability of an education loan largely depends on your credit score, which is calculated by the credit bureaus based on the total amount of your debt load and the timeliness of your past loan repayments. In case of bad credit history, you may well expect a very poor credit-score, which may require you to jump through a few more hoops to get your education financed.
2) Determining the Interest Rate
When you apply for education loan, your credit score is analyzed carefully and the interest rate to be charged is then priced accordingly. That is, a high interest rate for those with a poor score, while a lower rate for those with a very good one. In the former case, the interest rate is usually increased by lenders to compensate for the increased rate of loan defaults, which are very common when dealing with borrowers with bad credit history.
3) Need of a Co-Signer
Most lenders would ask you for a trustworthy co-signer before approving the loan. A co-signer is expected to be someone who is not only closely related to you, but also has an excellent credit score. The person who co-signs a loan for you has to put at risk his/her credit score. This is because if you fail to repay the loan amount within the stipulated time, it is your co-signer's good rating that is laid on the line.
4) Application Process
As you have a poor rating, you may well expect a longer application process. Unlike loan applicants with excellent credit scores, you cannot apply for student loans online. You would have to get in touch with a loan officer personally and explain him your financial situation. If you really wish to take out a loan, make sure you convince the lender that your money-management habits are going to change and that you are making a sincere effort towards it.
Finally, if the lending institution approves your loan, you should consider yourself very lucky as this loan will not only fund your education, but will also give you a golden opportunity to improve your credit rating. All you have to do is deliver the monthly loan repayments in time and budget your money smartly.
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