INTEREST RATE

This is probably the most crucial element of any loan. From the interest rate you can compute the total amount of interest that you will be incurring annually on the loan. It is the first thing you should clarify with your lender and it should be in the contract.

There are two kinds of interest rates: fixed or variable. You may also see the interest revealed as the simple rate (or the principal amount) or as the APR, which also includes other applicable fees.

A fixed interest rate means that the interest rate is set, or “fixed”. It doesn’t change in the duration of the loan. The advantage of this kind of loan is that you are given the exact amount that you will be paying throughout the years. .

A variable interest rate, on the other hand, fluctuates during the duration of the loan. The rate can change per quarter or per year, as influenced by a benchmark interest rate set by the government treasury. There is usually a set ceiling amount.

The most important thing to remember regarding interest rates is when the interest rate begins accumulating. Some student loans let you capitalize the amount, which means even if it generates interest this is added to the amount you will give later on.

Fees

Most loans will come with a fee for processing and other administrative matter, and if you miss a payment, finance charges will be applied. It is very important that you do not miss a payment. Not only do you get finance charges but your credit history suffers.

TERM

The term is the total number of payments you will make and the time you have to be able to pay back the loan. This is inversely proportional to the total cost of loan. The longer the term, the easier the monthly payments, but the greater the total cost of the loan.