Ensuring admission to the dream university is a dream come true for any parent and child. With admission, expenses like housing and accommodations, room and board, meals, commute, and other living essentials follow. Well, guardians may be well-off, but financing student education requires good savings back up. And hence, you may need a financial cushion in the form of a loan to bridge an additional amount hassle-free.
However, your child may be well-satisfied with managing his educational expenses. You may remain constantly concerned about any significant pitfalls. If you are, do not worry, you can become the sole borrower on loan instead of co-signing it with your child.
While it is not a new scenario to encounter, you must research the terms and conditions to apply and ensure a solid grip over the household income. And before choosing either option, you must be well-familiar with student and Parent loans.
Student loan Vs. Parent Loan: Explanation
Student loan:
It is available for undergraduate and postgraduate students to finance higher studies and pay for tuition and other maintenance costs. Students are solely responsible for the payments. They must build and have a stable credit profile to qualify. Although, it also entails parents’ household income and credit as students do not earn that time, so it is a co-signed loan.
As one co-signs it, both parents and the child will be responsible for the payments. He must contribute even if you take responsibility for your child’s payments. The payments on the loan begin quickly after they graduate or complete the course if the student starts earning after graduation.
Parent Loan
Parent loans are an option to pay the education loan all alone. If not, parents, grandparents, uncles, aunts, godmother/fathers, and spouse can finance the child’s education. Having a solid credit profile, parents can help children qualify for better interest rates and reasonable terms.
Moreover, it eases up the trouble for the lender regarding loan approval. Sound financial backing proves strong proof of the repayment; hence, lenders share no risk in lending education loans. Here, parents are solely responsible for maintaining repayments and paying the dues as per agreement.
Student loan Vs. Parent Loan: Repayments
Student Loan
Students often begin with payments once they reach a particular income bracket. Once they do, they must ensure regular payments on the loan.
Students must plan out their repayments in the last year itself. Check out the side gigs they could use to save extra until they get a job. They must build and work on their credit score.
They can split the repayments into good affordable halves. It would help them manage it quickly, along with other expenses like travelling for interviews and applying for online skill development courses.
Parents loan
With parent loans, guardians share the security of the money going right. They know they are the sole repayment entity on loan. Hence, there remains no ambiguity regarding the same. As the loan is in your name, it will impact your credit profile, not your child’s, if you miss any repayment.
Co-signing with your child on student loans may help his credit score. But that flexibility is simply absent in parent loans. Determine your monthly budget, income, and other child expenses ( if any), and decide how much you can dedicate towards repayments. It would help you pay off the loan without skipping repayments.
Student loan Vs. Parent Loan: Bad credit loan approval chances
Student loan
These private student loans have higher and variable interest rates than parent loans. You may be thinking:
How to get a private student loan with bad credit?
Qualifying for bad credit student loans is complicated and costly. You may get loan approval but face high-interest rates and other fees for bad credit.
Bad credit profile with CCJ, Bankruptcy, missed payments, defaults, and other red marks impact the credit score, making it less reliable in the lender’s eye. Thus, to ensure sufficient safety, lenders provide one at high-interest rates.
You can reduce the impact by:
- Borrowing less amount than available
- Choosing short-repayment terms instead of longer
- Working on your credit report and paying off dues
- Consolidating other loans to boost credit impact
- Students can try credit builder loans before applying for student loans
Parent loan
Guardians can qualify for bad credit loans for education if they have sound income. They must analyze the loan amount available and the income barriers. In bad credit, lenders would like to see more stable finances. So, if you have left your job or are between one, you must halt for a while.
You may qualify for better terms if you work with sound income, substantial assets, and finances. Check out your credit report and sign up for the electoral roll. Ensure the exact address and income proof to get the loan.
Some lenders grant you flexibility in choosing automatic payments. You do not have to remember payments, but they will automatically get deducted from your respective account.
Check whether you can pay some in a reasonable lump sum. Identify whether there are any charges on pre-payment or paying extra. If not, paying additional towards the loan can automatically make the loan affordable for you. And it will help you build and improve your credit score as well.
Which of these loans can you get on 100% approval on bad credit?
Whether student loans or parent loans, getting bad credit loans on guaranteed approval depends highly on personal circumstances and credit strength; hence there is nothing like 100% approval.
Students and Legal guardians must evaluate their financials and circumstances and work on their credit before applying for loans. Until parents maintain the repayments, the child must work to improve their credit history or build one because both participants must ensure contribution towards the loan.
If the person aligns with the lender’s eligibility criteria, including credit and income parameters, he may get the loan with immediate approval.
Student loan Vs. Parent Loan: Penalties or late payment fee
Student loans
The one managing student loans must ensure complete knowledge about the penalty or late payment fee. Also, know about the missed fee, if any. Students must thoroughly understand and read the terms in fine print to gauge the extra charges levied. It will help them, especially when they have yet to fetch a job.
Parent loan
A Parent loan generally comes with no prepayment or penalty fees. Still, confirm the same with your lender.
Bottom line
So, this is how student and parent loans differ widely in terms of repayments, fees, and eligibility. Identify the apt mode to finance education as per available savings, income, and priorities. Whether you want to co-sign with parents or let guardians manage the loan single-handedly is entirely upon you.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
