Low Interest College Loans

Example Interest Calculations For College Students



Low interest college loans
If you have made the decision to take out a college loan, either for yourself or on behalf of your son or daughter, one of the most important features you should be looking for is a low rate of interest.

Securing a low interest college loan will mean that your outgoings will be kept to a minimum when it comes to paying it back. Even a small difference in the interest rate of just one or two percent can really make a difference to the total cost of a loan, especially if you are borrowing a large amount of money and intend to repay the loan over a long period of time.

Below are some examples of how a low rate of interest can save you money.

Example 1: federal loan charged at 4.2% interest

Total loan amount: $10,000

Repaid over: 20 years

Monthly repayment: $61.66

Total cost of loan (amount repaid – original loan): $4,797.30

Example 2: private loan charged at 8% interest

Total loan amount: $10,000

Repaid over: 20 years

Monthly repayment: $83.64

Total cost of loan (amount repaid – original loan): $10,075.98

It is obvious from the calculations above that low interest rates can really make a difference to your repayment costs and more importantly to the total price of your loan. To demonstrate how much you could save by finding a loan at a slightly lower interest rate, have a look at example three below. Here the interest rate is only one per cent lower than in example 2, yet the benefits are clear; although the monthly repayments are only reduced by six dollars, the total saving over twenty years is almost $1,500.

Example 3: private loan charged at 7% interest

Total loan amount: $10,000

Repaid over: 20 years

Monthly repayment: $77.53

Total cost of loan (amount repaid – original loan): $8,607.14

To show you how much extra you are being charged by repaying a loan over a long period of time, compare the above repayment calculation with that of example 4 below, where the same loan is repaid over just ten years instead of twenty. Although the monthly repayments are much higher, you reep the rewards in the long run by cutting your interest bill by almost $5,000!

Example 4: private loan charged at 7% interest

Total loan amount: $10,000

Repaid over: 10 years

Monthly repayment: $ 116.11

Total cost of loan (amount repaid – original loan): $3,932.94

Please note that the above calculations are used for demonstration purposes only, and that other charges and variable rates of interest may have to be taken into account when calculating the cost of a loan.

 

 

 

 

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