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SVP
Joined: 04 Dec 2007
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13 May 2009, 06:59
As usual, I'm late to the "figuring out how loans work" party.

So. A question:
I'm trying to get an idea of loan rates from private lenders. Can I just call and ask what the rates are? Or does it vary so much that I have to apply? And if I have to apply, can I apply even if my school hasn't released the official budget? I thought I had to wait until I had that information before I could apply.

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14 May 2009, 04:05
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isa wrote:
As usual, I'm late to the "figuring out how loans work" party.

So. A question:
I'm trying to get an idea of loan rates from private lenders. Can I just call and ask what the rates are? Or does it vary so much that I have to apply? And if I have to apply, can I apply even if my school hasn't released the official budget? I thought I had to wait until I had that information before I could apply.

I think if you just call up you'll get a pretty standard "our rates generally vary from Prime-2% to Prime+5% depending on your personal credit rating." (NB - I just made those interest rates up, I don't know if that's actually what any bank is charging) In order for the lender to tell you precisely what interest rate they'll charge *you* you'll have to start the application process and let them run your credit report/score.

I'm not 100% sure on this, but I think you can start the application now and get pre-approved, find out interest rate, etc. then finalize and actually sign the note once the school's official budget is released.

I think solaris1 mentioned this somewhere, but it's worth repeating: keep in mind that every time you apply for a loan or a lender runs your credit report, that inquiry shows up on your credit report. If you have a lot of inquiries in a short period of time, it can have a negative impact on your credit score.
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14 May 2009, 06:08
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Jerz wrote:
I think if you just call up you'll get a pretty standard "our rates generally vary from Prime-2% to Prime+5% depending on your personal credit rating." (NB - I just made those interest rates up, I don't know if that's actually what any bank is charging) In order for the lender to tell you precisely what interest rate they'll charge *you* you'll have to start the application process and let them run your credit report/score.

I'm not 100% sure on this, but I think you can start the application now and get pre-approved, find out interest rate, etc. then finalize and actually sign the note once the school's official budget is released.

I think solaris1 mentioned this somewhere, but it's worth repeating: keep in mind that every time you apply for a loan or a lender runs your credit report, that inquiry shows up on your credit report. If you have a lot of inquiries in a short period of time, it can have a negative impact on your credit score.

This is Kellogg specific, but I emailed Amanda yesterday in FinAid and she said official notices for aid will go out sometime between today and next Tuesday. I believe at that time you will begin to search for lenders, so you may want to hold off a few days just to see what the process will be like. I don't think it will be too complicated once we receive our official awards.
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14 May 2009, 07:13
THank you! That's good to know. I think waiting until the final fin aid information comes through is a good idea. I'll start calling lenders soon after that!

Also, why does having credit inquiries lower your credit score? That seems strange to me..
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14 May 2009, 08:50
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isa wrote:
Also, why does having credit inquiries lower your credit score? That seems strange to me..

It is just a signal of instability in your life. Since there is a lag time in credit reporting, they have to use proxies for information instead of actual information. Looking for a lot of credit can be an indicator that you are about to take more than you can chew, since you could potentially get 5 or 10 huge loans in a matter of a few days without it showing up on your report for other creditors to see. They have to mitigate that risk by assuming that if you are looking for loans at five places, you could potentially take those loans as well. Thus your score goes down, albeit a small amount.

Someone who has more insight into this industry feel free to correct me if I'm wrong.
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14 May 2009, 10:15
dharmabum wrote:
isa wrote:
Also, why does having credit inquiries lower your credit score? That seems strange to me..

It is just a signal of instability in your life. Since there is a lag time in credit reporting, they have to use proxies for information instead of actual information. Looking for a lot of credit can be an indicator that you are about to take more than you can chew, since you could potentially get 5 or 10 huge loans in a matter of a few days without it showing up on your report for other creditors to see. They have to mitigate that risk by assuming that if you are looking for loans at five places, you could potentially take those loans as well. Thus your score goes down, albeit a small amount.

Someone who has more insight into this industry feel free to correct me if I'm wrong.

Wow didn't realize that. Thanks for the insight!!
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14 May 2009, 11:43
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isa wrote:
THank you! That's good to know. I think waiting until the final fin aid information comes through is a good idea. I'll start calling lenders soon after that!

Also, why does having credit inquiries lower your credit score? That seems strange to me..

I found this....

Quote:
MyFico.com
Will my FICO score drop if I apply for new credit?
If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

I remember reading about this when I was shopping for a mortgage. You could get as many inquiries as you'd like within a certain time period and they would all be treated as one.

RF
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14 May 2009, 11:53
wow thanks refurb!!
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15 May 2009, 03:57
Thanks refurb! I didn't realize they looked at inquiries for some loans different than others.
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15 May 2009, 13:47
Jerz wrote:
Thanks refurb! I didn't realize they looked at inquiries for some loans different than others.

I've read a couple things that said it won't affect your credit score if these inquiries eventually result in a loan.

So if you have 6 inquires, but you end up not taking a loan, your score might drop. Then again, others things I've read said this isn't true.

Either way, I don't think that will be an issue for any of us.

RF
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18 May 2009, 10:41
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http://www.finaid.org/loans/creditscores.phtml

This site seems to contradict the "multiple inquiries about private student loans won't hurt your FICO score" line of thinking.

finaid.org wrote:
How do Loan Applications affect Credit Scores?

Every loan application or "inquiry" has the potential to reduce your credit score. According to Fair Isaacs, the company that produces the FICO score used by most education lenders, one "inquiry" will generally result in a 5 point reduction in the FICO score. However, since people with six or more inquiries are eight times more likely to declare bankruptcy than people with no inquiries, it is best to keep the number of inquiries small. Also, if your credit history is short or involves very few accounts, an inquiry is likely to have a bigger impact.

On the other hand, the credit reporting agencies do account for "shopping around" behavior for auto loans and mortgages, but not for education loans. When you apply for a mortgage or auto loan, they ignore any current inquiries within the 30 day period prior to scoring and treat any past inquiries within a short period of time (e.g., 14 or 45 days, depending on the version of the FICO score) as a single inquiry. This compensates for the impact of shopping around. They do not say whether applying for different types of loans (e.g., credit card, mortgage, student loan) counts as separate inquiries even if they are within the shopping around window, but that is likely the case. So the best advice is to apply for all your mortgages and auto loans within a short time period (e.g., a week or two) and to not apply for too many loans.

Warning: Fair Isaacs says that while they conflate inquiries for auto loans and mortgages, they do not yet have enough historical credit data to do this for private student loans. This is partly because private student loans are relatively new and partly because lenders have not been distinguishing private student loans from other forms of unsecured credit. In the mid-1990s, total private student loan volume was about $1 billion, and few borrowers applied for more than one loan. So you still need to limit the total number of private student loan applications and to apply for the loans in a short time span. More than five inquiries is likely to reduce your credit score enough to have an impact on the interest rates and fees for subsequent applications. More than eight inquiries will definitely have an impact on the interest rates and fees. FinAid recommends limiting your private loan applications to one bank, one non-bank specialty lender and the nonprofit state loan agencies in your home state and the state where your college is located. VP Joined: 28 Feb 2008 Posts: 1323 Schools: Tuck Followers: 6 Kudos [?]: 123 [0], given: 6 Re: Financing Your MBA [#permalink] Show Tags 18 May 2009, 13:27 msday wrote: http://www.finaid.org/loans/creditscores.phtml This site seems to contradict the "multiple inquiries about private student loans won't hurt your FICO score" line of thinking. The part you quote seems to be talking about private student loans specifically. Or am I misreading it? RF _________________ VP Joined: 28 Feb 2008 Posts: 1323 Schools: Tuck Followers: 6 Kudos [?]: 123 [0], given: 6 Re: Financing Your MBA [#permalink] Show Tags 18 May 2009, 13:33 For all you guys looking at private student loans, I found this over at the bw forums. Quote: I think it's worth throwing a shout out for Discover student loans. They have rates starting at Prime minus .5, they have zero fees and they give a 2% graduation gift (in addition to the .25% credit for automatic debits). Add to that it took less than 5 mins to apply and the decision is instant, I'm really happy with the whole deal. They loan up to$60k per year.

To get the prime minus .5 you'll need to have good credit and you'll need a cosigner who has 800+ credit. That might be tough for some people but if you have a spouse or relative who doesn't mind jumping on there with you, it makes a big difference. Discover only pulls from Experian so that's the only bureau that matters. I had a 770 with Experian and was initially given Prime +3. I tried 3 different relatives until I got an 800+ cosigner at which point I got the Prime minus .5. They don't mind you "shopping" for cosigners. Each time I tried a new cosigner it took 3 minutes on the phone and the new decision was available two hours later. You can check it out at http://www.discoverstudentloans.com Hope that helps.

RF
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18 May 2009, 13:39
refurb wrote:
msday wrote:
http://www.finaid.org/loans/creditscores.phtml

This site seems to contradict the "multiple inquiries about private student loans won't hurt your FICO score" line of thinking.

The part you quote seems to be talking about private student loans specifically. Or am I misreading it?

RF

You're reading it correctly. Isn't anything that is not a Stafford or GradPLUS loan considered to be a private student loan?
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18 May 2009, 15:29
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Attached is a quick spreadsheet I made to help me narrow down private loan options. I think all the numbers are correct, but not completely sure, as I spent ~10 minutes doing this. Use at your own risk!
Attachments

File comment: Private lender information
private_loans.pdf [4.54 KiB]

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18 May 2009, 16:05
this is great info..

I think that Prime - 0.5% option seems best..
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18 May 2009, 17:02
msday wrote:
refurb wrote:
The part you quote seems to be talking about private student loans specifically. Or am I misreading it?

RF

You're reading it correctly. Isn't anything that is not a Stafford or GradPLUS loan considered to be a private student loan?

Oh I see, I didn't know we were talking about private loans specifically.

They do credit checks for GradPlus loans, but I guess those don't affect your credit score?

RF
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18 May 2009, 17:04
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msday wrote:
Attached is a quick spreadsheet I made to help me narrow down private loan options. I think all the numbers are correct, but not completely sure, as I spent ~10 minutes doing this. Use at your own risk!

Only one problem with your spreadsheet is that your timeline only goes back 10 years. If rates went to 15% like they did in the late 70's/ early 80's you could be totally screwed. Just know that it could happen with the amount of liquidity the Fed has pumped into the system.
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19 May 2009, 04:29
FN wrote:
this is great info..

I think that Prime - 0.5% option seems best..

Yeah I agree, refurb's post that he found at BW shows that it can be a bit tough to get the Prime - 0.5% rate (your co-signer needs an 800+ FICO score?), but if you shop around for relatives (lol), you may be able to get there.

I guess I wonder how Discover can get away with such a low rate in comparison to other lenders...maybe because the repayment period is 15 years vs. 20 years? That may be a part of it, but not the complete picture. Any financial gurus willing to venture some educated guesses?
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19 May 2009, 11:36
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Damn, I wish I could escape b-school with my current undergrad rate of 1.75%!

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