LOOKING INTO LOANS
The business of borrowing money
What great stuff awaits in your near future? Your own car? College or career education? Then chances are, borrowing money will be in your near future, too. There are things you can do right now to improve your chances of getting your first auto loan. And the options for paying for college include loans as well as ‘free money’ such as scholarships and grants. Start here to gain an overview, then visit the suggested websites for more detailed information. Because once you understand the basics of borrowing you’ll be ready to get loans without groans!
Financial aid 101
Aid and ‘free money’
The absolute best way to offset the cost of higher education is by being the absolute best high school student you can be. Excellent grades could earn you a scholarship. And college-level AP courses certainly take a bite out of tuition costs. There are also thousands of scholarships offered each year from a wide variety of sources, and many go unused simply because students do not know they exist. So do your homework, and you may be delighted to find you qualify for more free money than you imagined.
To begin your search for scholarships, try these resources:
In addition to ‘merit-based’ scholarships, you may qualify for ‘need-based’ grants. Both options are frequently called ‘gift aid,’ because the money you receive does not have to be repaid. Most states offer grant money to qualified students, so be sure to investigate what’s available there.
But the mother lode of financial aid comes from the federal government, which provides over $150-billion to students yearly. All searches for federal grant money must begin by submitting a Free Application for Federal Student Aid or FAFSA. A few weeks later, you and the schools you have applied to will receive a Student Aid Report (SAR), indicating how much grant money you are eligible to receive.
Popular sources of need-based grants come from:
FAFSA applications, state and federal deadlines, and a wealth of ‘free money’ resources can be found on the US Department of Education site.
Federal student loans
Going beyond ‘free’
Once you’ve applied for every scholarship, looked into every grant, and exhausted all your ‘free money’ options, it’s time to consider a student loan. Like all loans, these will accrue interest that must also be repaid. There are two main types available to you: federal and private.
You will probably want to look into a federal loan first, because it offers a lot of perks, including:
In some cases, based on employment situations, some or all of the debt may even be forgiven. Federal loans include:
Depending on your circumstances and the loan you choose, you pay be able to borrow up to $12,500 per year in Direct Loans. Graduate students can borrow up to $20,500.
Private student loans
Do your homework first
When there’s still a gap between scholarships, grants, and federal loans, students (and their parents) may turn to this option. Most private loans are offered by financial institutions. This means you need to shop around for the best interest rates, lowest fees, and most flexible repayment terms.
A growing number of schools offer private loans through their list of preferred lenders, and though you are not obligated to use them, the overwhelming majority of students choose from that list (in fact they usually go with the first bank listed). Resist that temptation until you’ve done your comparison shopping. Here are some other suggestions to ensure you make the most of (and pay the least for) a private loan:
Car loan = credit history
If every teenager could create a wish list, a car would probably cruise smoothly into first place. Buying your first car is a rite of passage that represents freedom, adulthood…and some pretty big challenges. You may be old enough to drive, but unless you’re 18 and gainfully employed, you’re not old enough to qualify for an auto loan on your own.
Of course, if you saved enough to buy your car with cash, you’re in the driver’s seat when it comes to shopping, negotiating and insuring your car. But if you need an auto loan you will need an adult co-signer. That person’s credit score and employment history will determine the interest rate of your loan, so it’s smart to get his/her credit report in advance, to ensure you’ll be offered the most favorable rates.
Remember: that co-signed loan establishes your credit history. Do not even think of borrowing the money unless you are positive you can handle your debt. Making on-time payments is not just expected – it is essential!
Put the ‘yes’ into your loan process
Teens (and adults with no credit history) have a tough time getting approved for loans, because they’re viewed as high-risk by lenders. This translates into higher interest rates at best, and lots of turn-downs at worst. However, there are things you can do to increase your chances of being approved:
Lease or buy?
Weigh the pros and cons
If you’re under 18, you’ll probably need a co-signer for either option. In the case of leasing, your parents would most likely need to lease the auto themselves, and list you as a regular driver.
Whether you lease or buy, you’ll be responsible for insurance and repairs. That said, which is a good way to go?
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