Student Loan Question?
Okay i want a 15,000 student loan. I have decent credit one bad mark on it….. Credit card that went haywire. Anyway, it went into collections but i payed it off. Now i have my grandfather cosigning and he has amazing credit. But i’ve had like 3 other credit cards other than that one that i’ve done perfect payments on. So now I want a 15,000 loan. I’d like to know who is the most likely to give me a student loan? Chase? Wells Fargo? First Bank? any banks let me know.
Cory:
Just one thing to remember while looking for this loan – loan approval is not based entirely on your credit score – your score is just one component of the decision making process.
It should be pretty obvious why this is the case – because you don’t pay a loan with your credit score – you pay it with income and assets that you have available to you. You can have a perfect credit score – but still have no ability to repay a debt – if you have insufficient income.
When you apply for this loan, the lender will evaluate at least three things:
1. Your credit score (which is the equivalent of “letters of recommendation” from other lenders)
2. Your income (which is the maximum amount of money that you have available to repay your debts)
3. Your “outgo” (which is the amount of your income that’s already spoken for by other obligations)
Those last two – income and outgo – are combined to create something called a “debt to income ratio” – and that’s probably the single most important part of the loan approval process.
If you have $1000 worth of credit bills and other obligations that you pay every month, and you earn $2000 a month, then you have a debt to income ratio of $1000/$2000 = 50% On the other hand, if you have $1800 of monthly bills and $2000 of income, then your debt to income ratio is 90%.
Your debt to income ratio tells the lender how much of your monthly income is already being spent on other things – if there’s very little money left when you pay your other bills, the lender will conclude that you can’t afford any more debt, and they’ll deny your loan, even if you have great credit. All the great credit in the world can’t actually PAY the bills.
Once upon a time – not all that long ago – educational lenders treated student borrowers as a special case. They weren’t so much interested in what your income was NOW, because they figured that you’d be making much better money in a few years, when your loan payments become due.
Unfortunately, that was a risky way of looking at things – because the lenders found out that it wasn’t always possible to predict whether the student would get a high paying job or a crappy job – in fact, the lenders couldn’t even predict if the borrower would finish school at all. They wound up making a lot of loans to students who dropped out, flunked out, or graduated with a degree in snail farming – and a lot of those loans went bad.
For the last couple of years, lenders now treat student applicants like anyone else – they want to know how much you earn NOW – not how much you might hypothetically earn in the future.
Of course, they know you probably don’t earn much now – that’s why they almost always ask for a cosigner – because they are very interested in what the cosigner earns NOW. Your grandfather can have exceptional credit, and still not qualify as an acceptable cosigner for a student loan – unless he has the current and continuing income to pay off this loan.
Cosigning is NOT a tag-team sport – the lender won’t combine your income and credit with your grandfather’s. They want to know – individually – is either one of you in a position to repay this loan as of right now. If neither of you qualify, you won’t be approved for the loan.
Save yourself some time – apply at one or two major lenders. If you’re rejected, that’s the same answer you’re going to get from all of them. There are no lenders right now who have “liberal” approval standards – they’re all exceptionally rigorous and conservative – so a “no” from one or two is pretty much telling you what you’re going to hear from all of them.
Good luck!
