# APR vs Interest Rate: Understanding the Difference

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

When you’re shopping for a loan, don’t let your research end with a comparison of lenders’ interest rates. While a low interest rate is appealing, it’s important to also look at each loan’s annual percentage rate (APR), which will provide a clearer picture of how much the loan will cost you when fees and other costs are factored in.

## APR vs Interest Rate: Understanding the differences

The difference between APR and interest rate is that APR will give borrowers a truer picture of how much the loan will cost them. While APR is expressed as an interest rate, it is not related to the monthly payment, which is calculated using only the interest rate. Instead, APR reflects the interest rate along with fees and other one-time costs a borrower will pay for a loan.

“You can find a mortgage that has a 4-percent interest rate, but with a bunch of fees, that APR may be 4.6 or 4.7 percent,” said Todd Nelson, senior vice president-business development officer with online lender Lightstream. “With all of those fees baked in, they are going to swing the interest rate.”

For example, one lender may charge no fees, so the loan’s APR and interest rate are the same. The second lender may charge a 5 percent origination fee, which will increase the APR on that loan.

### How the APR is calculated

Lenders calculate APR by adding fees and costs to the loan’s interest rate and creating a new price for the loan. Here’s an example that shows how APR is calculated using LendingTree’s loan calculator.

A lender approves a \$100,000 at a 4.5 percent interest rate. The borrower decides to buy one point, a fee paid to the lender in exchange for a reduced rate, for \$1,000. The loan also includes \$900 in fees.

With these fees and costs added to the loan, the adjusted balance being borrowed is \$101,900. The monthly payment is then \$516.31 with the 4.5 percent interest rate, compared with \$506.69 if the balance had remained at \$100,000.

To find the APR, the lender returns to the original loan amount of \$100,000 and calculates the interest rate that would create a monthly payment of \$516.31. In this example, that APR would be 4.661 percent.

APRs will vary from lender to lender because different lenders charge different fees. Some may offer competitive interest rates but then tack on expensive fees and costs. Lenders with the same interest rate and APR are not charging any fees on that loan, and lenders that offer APR and interest rates that are the closest will charge the least-substantial amount of fees and extra costs.

### What can impact my APR?

While APR will change as interest rates fluctuate, lenders’ fees and costs will have the greatest impact on APR. Here are some of the fees that will affect the APR.

Discount points: Buying points to lower a loan’s interest rate can have a significant impact on APR. Lenders allow buyers to purchase “points” in return for a lower interest rate. A point is equal to one percent of the mortgage loan amount. For example, a buyer approved for a \$100,000 loan could buy three points, at \$1,000 each, to lower the interest rate from 4.5 to 4.15.

Loan origination fees: Loan origination fees typically range between 1 and 6 percent, according to Nelson. This can be especially significant for larger loans.

Loan processing: This fee, which some lenders will negotiate, pays for the cost of processing a mortgage application.

Underwriting: These fees cover an underwriter’s review of a loan application, including the borrower’s income, credit history, assets and liabilities, and property appraisal, to determine whether the lender should approve the loan application and what terms should be applied to the loan.

Appraisal review: Some lenders pay an outside reviewer to make sure an appraisal meets underwriting standards and that the appraiser has submitted an accurate report of the home’s value.

Document drawing: Lenders often charge a fee for creating mortgage documents for a loan.

Commonly not included in APR are notary fees, credit report costs, title insurance and escrow services, the appraisal, home inspection, attorney fees, document preparation and recording fees.

Because APR includes a loan’s interest rate, rising interest rates will increase APR for mortgages, auto loans and other types of loans and credit.

### Interest rate vs APR: What should I focus on when shopping for a mortgage?

While lenders often push their low interest rates when they advertise loans, Nelson said it’s vital that consumers check loans’ APR when shopping around and pay attention to how loan advertisements are worded.

“Look for a lender that’s transparent about disclosing all of those fees,” he said. Lenders may advertise “no hidden fees,” he said, but that might mean there are other fees that simply aren’t hidden.

Here’s how two loans for the same amount can have different APRs.

Loan amount

Fees and costs

Fixed interest rate

APR

\$200,000

\$1,700

4.5%

4.572%

\$200,000

\$2,600

4.5%

4.61%

The Truth in Lending Act requires lenders to disclose APR in advertising so that consumers can make an equivalent comparison between loans. If two loan offers have similar APRs, request a Good Faith Estimate (GFE) or Loan Estimate from each lender.

Lenders are required to provide this document, which shows all expenses associated with the mortgage, within three business days of the loan application date. Some lenders may be willing to supply a loan estimate for consumers who are shopping for a loan.

### APRs on Adjustable Rate Mortgages (ARMs): What to know

It’s important to remember that the APR on ARMs will not apply for the life of the loan, as the payment on the loan will change as the economy fluctuates. APR on ARMs is calculated for the interest rate during the loan’s introductory period, and no one can predict how much the rate will increase in years to come.

A loan with a 7/1 ARM, for example, will have a fixed rate for the first seven years that is determined by the current economic conditions on the day the loan was approved. After seven years, the lender will begin to adjust the rate based on movement of the economic index, which likely will not be the same as it was when the loan was approved. Rates fluctuate daily, and no economic forecaster can predict where the index will be in 20 or 25 years.

### Understanding mortgage interest rates

A mortgage rate is another term for interest rate, which is the rate that a lender uses to determine how much to charge a customer for borrowing money. Mortgage rates can be either fixed or adjustable.

Fixed mortgage rates do not change over the life of a loan. For example, if you take out a 30-year loan at a 4.25 percent interest rate, that rate will stay the same regardless of changes in the economy and market index, through the entire lifetime of the loan.

Adjustable rate mortgages (ARM), on the other hand, will change as the market changes after an introductory period, often set at five or seven years. That means your interest rate could go up or down depending on economic conditions, which will in turn raise or lower your payments.

ARMs, which are a common type of mortgage loan with an adjustable rate, often start with a lower interest rate than a fixed mortgage — but only for that introductory period. After that, the rate could go up as it adjusts to market conditions, which could raise your payment accordingly.

If you are considering an ARM, it’s important to talk to your lender first about what the adjustable rate could mean for your loan payment after the introductory period. The federal government’s Consumer Financial Protection Bureau (CFPB) recommends researching:

• Whether your ARM has a cap on how high or low your interest rate can go.
• How much your monthly payment and interest rate can increase with each adjustment.
• Whether you can still afford the loan if the interest rate and monthly payment reach their maximum under your loan contract.

### How is your mortgage rate calculated?

Don’t be surprised if a lender offers you a mortgage interest rate that is higher than what is advertised. Each loan’s interest rate is primarily determined by market conditions and by the borrower’s financial health. Lenders take into account:

• Your credit score: Borrowers with higher credit scores generally receive better interest rates.
• The terms of the loan: The number of months you agree to pay back the loan can make a difference. Generally, a shorter term loan will have a lower rate than a longer term loan but higher monthly payments.
• The location of the property you are purchasing: Interest rates are different in rural and urban areas, and sometimes they can vary by county.
• The amount of the loan: Interest rates can be different for loan amounts that are unusually large or small.
• Down payment: Lenders may offer a lower rate to borrowers who can make a larger down payment, which often is an indicator that the borrower is financially secure and more likely to pay back the loan.
• Type of loan: While many borrowers apply for conventional mortgages, the federal government offers loan programs through the FHA, USDA, and VA that often offer lower interest rates.

### How often do mortgage rates change?

Mortgage rates fluctuate on a daily basis. Because the market changes so often, lenders typically give borrowers the opportunity to lock in or float your interest rate for 30, 45, or 60 days from the day your lender approves your loan. That way you won’t get burned if rates rise soon after you secure a loan.

If you choose to lock in your rate, lenders will honor that rate within the agreed-upon time period before closing regardless of market fluctuations. Floating your rate will allow you to secure a lower interest rate before closing, should rates drop during that period.

### How do mortgage rate changes impact the cost of borrowing?

Small differences in the interest rate can cost a borrower thousands of dollars over the life of the loan. Here’s an example for a 30-year, fixed-rate mortgage using our parent company LendingTree’s online mortgage calculator tool:

Mortgage (30-year)

Fixed interest rate

Monthly payment

Total borrowing cost

\$200,000

3.65%

\$914.92

\$129,371.20

\$200,000

3.85%

\$937.62

\$137,543.20

\$200,000

4.25%

\$983.88

\$154,196.80

### What’s a good rate on a mortgage?

While mortgage rates change daily, Nelson noted that mortgage rates have stayed low for several years now and don’t show signs that they will increase drastically in the nearly future.

LendingTree’s LoanExplorer tool recently showed interest rates for a 30-year, fixed-rate mortgage as low as 3.625% for borrowers with excellent credit.

### Shop wisely

When shopping for loans, you can best compare loans by getting mortgage quotes from lenders at the same day on the same time. Online marketplaces such as LendingTree also can provide real-time loan offers from multiple lenders, which makes it easier to compare mortgage APR vs. interest rates.

Don’t be dazzled by low interest rates. If the loan’s APR matches its low interest rate, you likely have a good deal. Otherwise, investigate the costs and fees behind a loan’s APR to best determine which loan offer is the best deal.

Marty Minchin |

Marty Minchin is a writer at MagnifyMoney. You can email Marty here

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# Using a Cosigner to Get a Personal Loan

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Life can get expensive, whether it’s paying for a child’s wedding or unexpectedly buying a new furnace when yours breaks in the middle of winter. Personal loans can be a quick and easy way to borrow the money you need — if you have good credit — as you can get a lump sum in a variety of amounts that you can use at your discretion.

Some borrowers, however, may have trouble qualifying for a personal loan. This often happens due to a low credit score, past bankruptcies or the lack of a credit history. In these cases, one way to increase your chances of qualifying for a personal loan is to persuade a friend or family member with good credit to serve as your cosigner.

## What is a cosigned loan?

When lenders assess loan applications, they are looking at applicants’ financial histories to determine how likely they are to repay what they borrow. Lenders may turn down applicants who have a poor credit score, lack a steady income or don’t have much of a credit history. To a financial institution, people with those attributes may pose too great a risk.

But a cosigner gives applicants a way around these circumstances.

A personal loan cosigner is someone who agrees to assume equal responsibility for the loan, which means that if you can’t make the payments, the cosigner must. Typically, a cosigner for a personal loan has a good credit score and and the ability to repay the loan, based on his or her income and other debt obligations.

You can benefit from a cosigner in two ways. First, a cosigner’s good credit score and financial history may help you — an otherwise unqualified borrower — get a personal loan. Secondly, a cosigner can assist you in receiving a significantly lower interest rate.

### Pros:

• A cosigner can help you qualify for a personal loan or get a lower interest rate you wouldn’t otherwise get because of poor or thin credit or insufficient income. A cosigner also can increase the number of loan offers you receive, according to a spokesperson for LendingClub, an online lender.
• A personal loan with a cosigner can provide you with much-needed cash, whether it’s to pay off high-interest debt or fund home repair.
• If you’re determined to improve your credit, you can use a cosigned personal loan to build your credit rating by making regular, on-time payments until the loan is paid off.

### Cons:

• The account will show up on your credit report, but also on the cosigner’s. If you miss a payment, both you and your cosigner will see your credit suffer.
• If the cosigner applies for a mortgage or other loan, the cosigned personal loan could show up on his/her credit report as a monthly obligation and lower that person’s debt-to-income ratio — even though the cosigner is not making the payments on the personal loan.

### Cosigner versus coborrower

The person who agrees to apply for a personal loan can take on one of two roles in the process: cosigner or coborrower. Both roles require taking full responsibility for the loan if the you default on payments.

Coborrower: A coborrower, also called a joint applicant, acts like a partner in the transaction, accepting equal responsibility for paying off the loan and allowing his/her income and assets to be considered on the loan application. The coborrower’s name will appear on loan documents.

Coborrowers are entitled to a share of the loan’s proceeds and share in the obligation to repay the loan.

Cosigner: A cosigner’s name also appears on loan documentation, but rather than sharing ownership in the loan, the cosigner agrees to repay the loan if you cannot make the payments. The cosigner serves as a guarantor of the loan and is only liable if the applicant fails to make payments.

## How to get a cosigned personal loan

### Income requirements

Most lenders will look at an applicant’s work history and current employment when determining whether he/she is likely to repay the loan. While a lender may not require a minimum income, the applicant will need to demonstrate that there will be a secure income over the life of the debt.

### Credit requirements

Because the personal loan market has grown more competitive, lenders offer a range of interest rates based on the amount and length of the loan and the borrower’s credit history. Most lenders only will consider good or excellent credit, although there are options for people with bad credit. Here are the best personal loan rates available now, for a variety of credit levels.

One advantage of personal loans is that they are simple financial products, which means borrowers only need to compare loans’ interest rate and fees. Personal loans are approved for a certain amount, which the borrower receives upon loan approval. The borrower then makes fixed payments at a fixed interest rate until the load is repaid.

If you want to get the best rate possible or want to get a loan without a cosigner, there are several actions you can take to improve your financial standing.

### Improve your debt-to-income (DTI) ratio

Lenders use DTI to figure out what percentage of your income is spent on paying debts. It’s determined by dividing your monthly debt payments, including credit cards, vehicle loans and student loans, by your gross monthly income (income before taxes). Lenders look for a low DTI, which indicates better financial health.

Lenders often look favorably on applicants with DTIs in the 30s. For example, Wells Fargo lists on its site that a DTI of 35 percent or less shows that the borrower likely has money to save after paying bills. A DTI between 36 and 49 percent indicates that the borrower may struggle to handle unforeseen expenses, and lenders may look at other eligibility criteria for borrowers in this range, according to Wells Fargo.

A DTI of 50 percent or higher shows that most of a borrower’s income is going toward paying off debts, leaving little or no money for unexpected expenses. Lenders may be unlikely to consider applicants in this category.

If your DTI is too high, with time and financial discipline you can improve the picture. You’ll need to reduce your total monthly debt payments, which you can do by paying off loans or refinancing or consolidating loans for a lower interest rate and/or monthly payment.

According a November 2017 analysis of personal loan offers aggregated by MagnifyMoney, lenders require credit scores ranging from minimums in the mid-500s to 720. A higher credit score will typically result in a lower interest rate on a personal loan.

Here are the best ways to increase your credit score, according to credit scoring giant FICO:

• Pay your bills on time.
• Reduce the amount of debt you owe, which you can do by make extra payments toward your debts and curbing your spending to keep your credit card balances low.
• Check your credit report for errors that could be hurting your score.

### Shop around for rates

A number of lenders have entered the personal loan market, and it’s worthwhile to check offers online. LendingTree, our parent company, is a good place to start comparing personal loan offers.

Be sure to examine each loan’s repayment terms and rates, as they could differ — even from the same lender. Additional charges can include personal loan origination fees that can range from 0.99 to 8 percent of the amount of the loan (although some lenders don’t charge this fee), late payment fees, check processing fees and penalties for paying off the loan early.

### Lenders that allow cosigned personal loans

Here are three lenders from our list of best personal loan rates that offer loans with cosigners.

Lightstream: Lightstream is the online lender of SunTrust, and if offers a streamlined application process that can result in funding in one business day. For a \$10,000, 36-month personal loan, Lightstream offers an interest rate of 3.24 percent for applicants with excellent credit and rates up to 7.34 percent for applicants with credit as low as the minimum score of 680. Lightstream does not require an origination fee, but it does adjust its terms based on the intended use of the personal loan. The online lender rates well for its transparency with its terms, and it does not charge additional fees.

LendingClub: LendingClub offers an easy online application process that will provide you with a table of loan options based different amounts, lengths of the loans and interest rates. The lender will offer loans as high as \$40,000 for up to 60 months, and interest rates are determined by LendingClub’s internal scoring system. Scoring is based on the applicant’s DTI ratio (it should not be above 50 percent excluding mortgage payments), a credit report with few hard inquiries, a credit score of at least 600, and evidence of some credit history. LendingClub charges an origination fee of 1-6 percent of the amount of the loan.

Note that LendingClub does not offer loans to residents of Iowa and West Virginia.

OneMain: While OneMain will offer personal loans to applicants with credit scores of 600 and same-day financing, the tradeoff is high interest rates and stricter personal requirements. Applicants must have a job and verifiable income, no bankruptcy filings and some credit history. Interest rates will range between 17.59 percent and 35.99 percent, and OneMain offers personal loans up to \$25,000. The lender does not offer loans for tuition or businesses expenses. OneMain does not charge an origination fee, but lenders likely will try to sell you unemployment, life or disability insurance when you apply for a loan.

### Finding a cosigner

Approaching a trusted friend or relative about cosigning a personal loan can be touchy; you are asking them to risk their credit and finances for you to borrow money.

Most importantly, your cosigner should be financially stable and have enough money to repay the loan should you be unable to do so. A spokesperson for LendingClub said many borrowers asking about loans often bring up the idea of asking a close friend or family member to cosign. “Be sure your cosigner has a solid financial history and a strong credit profile,” the spokesperson said. These factors will play a significant role in the rates and offers you’ll get for a personal loan.

Even with all of those factors in place, be prepared for everyone you ask to say no. Cosigning a loan presents a significant risk that some people — no matter how much they like you — won’t be willing to take.

When it comes to repayment, it is vital that you make every monthly payment on time. Missed payments will show up on your cosigner’s credit report, which will hurt that person’s credit as well as yours. If someone trusts you enough to risk his or her good financial standing, rise to the occasion and do whatever it takes to pay off your cosigned personal loan responsibly and on time.

If you’re the one considering cosigning a loan, the Federal Trade Commission recommends you ask the creditor to notify you if the borrower misses a payment — get the agreement in writing. The FTC also encourages you to get copies of all documents pertaining to the loan and keep them for your records.

### Can I remove my cosigner from the personal loan in the future?

The option to release a cosigner varies by lender. Some lenders, such as LendingClub, will not allow you to remove a cosigner from a loan at any point, while others may allow you to release a cosigner after the primary borrower has made a certain number of on-time payments. Before you commit to a loan, ask if removing a cosigner is an option and, if so, how to go about it when the time comes.

Personal loans with cosigners can greatly benefit borrowers, but it’s important to keep in mind that cosigners are putting their finances on the line to help you. Borrowers can best protect their cosigners by making sure they are vigilant about keeping a steady income, making payments — and yes, using the loan responsibly.

Marty Minchin |

Marty Minchin is a writer at MagnifyMoney. You can email Marty here

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# What Is the NSLDS? A Tool to Keep Track of Student Loans

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Over the course of a college career, a student may take out multiple education loans of different amounts and term lengths. Loans are often granted on an annual basis, and by the time you graduate, it’s easy to lose track of your total borrowing.

What’s more, holders of federal loans get a short reprieve from repayment after graduation — up to six or nine months, depending on the loan time — making it can be easy to forget that you’ve got money due. It’s smart to use that grace period to begin planning for repayment, rather than viewing it as a vacation from thinking about your college loans.

One of the best ways to keep track of your federal student loans and payments is through the National Student Loan Data System, a centralized database for federal student loan and grant information managed by the U.S. Department of Education. By checking in regularly on the NSLDS, you can stay on top of how much you owe, the repayment terms of your loans and the monthly payment amounts.

For new graduates making a budget — sometimes for the first time — this student loan information can help them understand how much money they need to set aside for monthly payments, or if they need to look into alternative loan repayment programs.

“It’s a helpful tool, and so often as humans, we’re inclined to denial or procrastination,” says Melinda Opperman, executive vice president with Credit.org, a nonprofit organization focused on personal finance education. “By ignoring that tool, you could have a problem compounding. See what’s in there, and get yourself anchored and prepared.”

## What’s the purpose of the National Student Loan Data System (NSLDS)?

The NSLDS was authorized as part of the 1986 Higher Education Act (HEA) Amendments and is administered by the Office of Federal Student Aid. It was formed with three purposes:

• To better the quality of student aid data and its accessibility
• To decrease the administrative work required for Title IV Aid
• To decrease fraud and abuse of student aid programs

The NSLDS initially focused on federal loan compliance but eventually expanded to encompass detailed data from federal student loan and grant programs in which students are enrolled.

## Where does the NSLDS get its information?

The NSLDS gets information from several government and loan processing services. Here are the sources for NSLDS data:

• Guaranty agencies, which are state agencies or private, nonprofit organizations that provide information on the Federal Family Education Loan (FFEL) Program
• Department of Education loan servicers
• Department of Education debt collection services (information about defaults on loans held by the Department of Education)
• Direct loan servicing (information on federal direct student loans)
• Common origination disbursement (information on federal grant programs)
• Conditional disability discharge tracking system (information on disability loans)
• Central processing system (information on aid applicants)
• Individual schools (information on federal Perkins loan program, student enrollment and aid overpayments)

When data from these sources are combined, you can get a comprehensive overview of your outstanding loans, repaid loans and repayment schedules.

The NSLDS is updated according to each organization’s loan reporting schedule. Some report monthly, and many report data more frequently.

## What you’ll find on the NSLDS

After signing up for an FSA ID (Federal Student Aid ID), you can log into the NSLDS to see the updated status of your federal student loans and grants, as well as your college enrollment status and the effective date of your status.

Loans are listed from newest to oldest, and you can find more information about each, including the loan servicer’s name and contact information, by clicking on the loan number. You also will have access to an array of details about each of your federal loans and grants:

• Name
• Disbursed amount
• Date of disbursement
• Last-known balance
• Outstanding interest
• Status (e.g. repayment, in grace, paid in full)
• Status effective date
• Interest rate
• Progress toward the 120 qualifying payments needed for Public Service Loan Forgiveness
• Income-driven repayment plan anniversary date

“It gives a centralized, integrated view of the loans and grants under the student’s complete life cycle,” Opperman says. “Everything is there.”

You may see a lot of terms and abbreviations you don’t recognize, but there’s a glossary to help you understand them.

## What you won’t find

The NSLDS only provides information about federal loan programs, so you will not see details about private loans. To get that information, you’ll need to contact your private loan’s servicer or your school’s financial aid department. You also can review your credit report (you are entitled to one free credit report annually) to find the information.

#### You also won’t find:

• Real-time balance accounts. You should see the outstanding principal balance for each loan, but this number may not include the most recent data. Contact your loan servicer for the most up-to-date numbers.
• Information about nursing and medical loans. While these are federal loan programs, they are not included in the NSLDS. Contact your school’s financial aid department for information about nursing or medical loans.
• Loans you are not responsible for paying. Any federal loans your parents took out on your behalf, including federal PLUS loans, will not be listed on your NSLDS account. For information about federal student loans that they are responsible for paying, your parents will need to create their own FSA ID and password to access the NSLDS data.

Even with these gaps in information, the NSLDS is a great place to start when you’re not sure whom to contact with student loan questions or when you’re trying to get on top of your loan payments. It’s also helpful if you’re trying to figure out what type of loans you have, which is necessary when you’re applying for certain loan forgiveness programs.

To create an FSA username and password, visit this link. Opperman says the certified student loan counselors who work with Credit.org recommend you never give out your FSA number or password, even to credit counselors. This information carries the legal weight of a signature, and it can be used to commit identity theft. Credit counselors can get student loan information from you rather than by directly accessing your NSLDS account.

To look at your federal loan and grant information, click on “Financial Aid Review” after entering your FSA ID and password into the NSLDS website. You do not have to enter loan information, as agencies that issued your federal grants and loans will be responsible for reporting information to the NSLDS.

## Is this site accurate?

While the information on the NSLDS generally is accurate because it is provided by loan servicers, it is usually not up to date. Organizations that provide loan information for the NSLDS report on different schedules..

#### What if the info is wrong?

The NSLDS is not infallible; it’s important to check your page regularly for errors and inaccuracies. Here are some common issues with the NSLDS and how to remedy them:

#### An error

Check the NSLDS record for this loan, and contact the data provider listed. You will need to give the data provider information that will help the organization look into the error and remedy it. If the data provider is uncooperative and will not fix the error, contact the NSLDS Customer Service Center at (800) 999-8219.

#### Missing data

If updated loan information is not available within 45 days of disbursement, contact a guaranty agency, the loan’s servicing center or your school’s financial aid office. Otherwise, allow for typical time lapses in reporting.

#### Can I update loan information and personal identifiers online?

Usually, no. Typically, only data providers can update information related to your loan when they make their reports to the NSLDS.

#### Is the site secure?

The site has an SSL certificate, which means all data passing between your web browser and the site server is encrypted (provided you’re using an SSL-compatible browser, like the latest versions of Chrome, Firefox, Safari or Internet Explorer).

#### Is the NSLDS site free?

The Department of Education does not charge a fee to use the site.

#### What web browser should I use for best results?

The site is designed to work best with Microsoft Internet Explorer. You can use other browsers, but keep in mind that the NSLDS pages may not function or display properly on other browsers. The NSLDS system requirements page provides help with browsers and a link to contact information for further assistance.

#### Will my FSA password work indefinitely?

No. FSA ID passwords expire every 90 days. Fifteen days before the password expires, you will see a warning that it must be changed soon. Users can reset their passwords anytime during that 15-day window by clicking on the “change password” link on the FSA login page.

#### What if the organization contact list page for a loan has no contact information?

In this situation, call the NSLDS support number: (800) 999-8219.

#### What if I have more questions?

You can call the Federal Student Aid Information Center at (800) 4FED-AID — 1-800-433-3243 — between 8 a.m. and 11 p.m. Eastern Time, Monday through Friday, and 11 a.m. to 5 p.m. on Saturday and Sunday. This helpline is not available on federal holidays. You can also contact the office by email or live chat through the website.

Marty Minchin |

Marty Minchin is a writer at MagnifyMoney. You can email Marty here

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# How to Determine If a No Closing Cost Refinance Is Right for You

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

A home mortgage refinance doesn’t come cheaply, as homebuyers typically must pay thousands of dollars in closing costs and fees to finalize a loan. These expenses can seem endless as you get bills for everything from attorney fees to an appraisal to a loan origination fee. Closing costs vary by lender, loan amount and location, but in the end, they’re usually up to 3 percent of the home’s purchase price. For a \$200,000 loan, that means closing costs of roughly \$6,000.

For many homebuyers, these upfront costs put refinancing out of reach.

### What is a no closing cost refinance?

A no closing cost refinance means that you refinance your home mortgage without paying thousands of dollars in upfront closing costs and fees to close the loan. But that “no” in the name can be confusing, because you’re not really avoiding that expense. While this process can save homebuyers money upfront, lenders work in closing costs elsewhere either by slightly raising interest rates or adding the closing costs to the balance of the loan.

### How do I get one?

You can refinance your mortgage with no closing costs at banks, credit unions or other lenders. Standard qualifications for refinancing will apply, including a property value that exceeds the amount of the refinance and a credit score that is greater than lender minimums (usually more than 620). Lenders also typically expect your refinance payment and other debt payments to total less than 43 percent of your gross income.

## Savings analysis: No closing cost refinance vs. regular refinance

No closing cost refinance doesn’t always result in savings. Homeowners who have a good idea how long they will stay in the house will be in the best position to decide whether refinancing without closing costs is a good idea.

Here is a comparison between a standard refinance and a no closing cost refinance where the lender slightly raises the interest rate to compensate for the lost closing costs. Loan officers will raise your interest rate based on daily market rates.

Regular refinance

No closing cost refinance

Mortgage balance

\$200,000

\$200,000

Closing costs

\$4,800

None at loan closing

Refinance interest rate

3.5%

4.1%

Term

30 years

30 years

Monthly payment

\$898

\$966

Total cost of mortgage*

\$323,312

\$347,903

In this example, a homeowner who stays in his home for at least 30 years will save \$68 per monthly payment and more than \$24,500 over the life of the loan with a lower interest rate. The additional interest that comes with the no closing cost refinance loan far exceeds the \$4,800 of closing costs with a regular refinance.

Another common way lenders will refinance a mortgage with no closing costs is to roll the costs into the balance of the loan. Here’s the same mortgage using this option.

Regular refinance

No closing cost refinance

Mortgage balance

\$200,000

\$204,800

Closing costs

\$4,800

None at loan closing

Refinance interest rate

3.5%

3.5%

Term

30 years

30 years

Monthly payment

\$898

\$920

Total cost of mortgage*

\$323,312

\$331,072

The no closing cost refinance costs an extra \$22 per month. If you stay in your home for the duration of the loan, the no closing cost refinance would add an additional \$2,960 to your mortgage expenses (after accounting for the \$4,800 you’d pay upfront for the regular refinance).

For homeowners who only plan to stay in their homes five years or fewer, however, refinancing with no closing costs could help them break even or come out ahead on closing costs. Here’s a breakdown.

Regular refinance

No closing cost refinance

Mortgage balance

\$200,000

\$200,000

Closing costs

\$4,800

None at loan closing

Refinance interest rate

3.5%

4.1%

Terms

30 years

30 years

Remaining balance after five years

\$179,394.15

\$181,185.57

With a no closing cost refinance, you would pay about \$1,790 more on a \$200,000 mortgage if you got a regular refinance; however, you would have paid the \$4,800 in closing costs upfront, meaning you’d save money in the long run with a no closing cost refinance (assuming you sell the house after five years).

### The upside

The biggest advantage of a no closing cost refinance is you do not have to come up with several thousand dollars in cash to close on your refinanced mortgage. Closing costs can add up quickly as you factor in an appraisal, loan origination fee, and other charges, and many buyers simply can’t afford them. A no-cost refinance doesn’t eliminate those costs, but it does spread them out into monthly payments, allowing you to pay for them over time.

### The downside

Over the life of a loan, a refinance with no upfront closing costs can add up to a significantly more expensive choice than a traditional refinance. You can use a refinance calculator to help you figure out whether a no-cost refinance is worth it.

### Is a no closing cost refinance right for you?

As you are thinking through whether a refinance with no closing costs is right for you, here are some questions to consider.

### Will you qualify to refinance your mortgage?

Before applying, make sure your credit score is high enough to be approved for a refinance loan. You’ll also need to have sufficient equity in your home and a debt-to-income ratio of less than 43 percent, in most cases.

### Will refinancing lower your monthly payment?

If your goal is to get a lower monthly mortgage payment through refinancing, a traditional refinance will likely be your best bet. A no closing cost refinance could also lower your monthly payment, though. Don’t forget to calculate in either the higher balance or higher interest rate you’ll have after the lender factors in closing costs. Before you agree to the refinance terms, be sure they will lower your monthly payment enough to be worthwhile.

### How long do you plan to stay in your house?

If you are planning on selling your house in less than five years, a refinance with no closing costs almost always will save you money. You may have a higher monthly payment than a regular refinance, but if you get out of the mortgage after a few years, you likely will have spent less than if you had taken out a traditional refinance and paid closing costs.

If you plan to stay in your house indefinitely or longer than several years, a no closing cost refinance may be much more costly in the long run.

## How to shop for mortgage refinance loans

To compare no closing cost refinance offers, visit financial institutions and talk with loan officers. They will look at current interest rates and your financial information to help you determine whether refinancing with no closing costs will work for you.

One advantage of no closing cost refinances is that they eliminate the closing costs and fees that can make loan-offer comparisons complicated. With quotes for no closing cost refinance mortgages in hand, you can easily compare interest rates. This allows mortgage shoppers to more effectively shop around and find the best deal.

### What to look out for

As you should before agreeing to any loan terms, make sure you understand all costs involved. While a lender may not be charging closing costs when the loan is signed, there may be other fees and expenses that aren’t waived. Ask about fees and what they include. These could be:

• Government transfer taxes
• Homeowners insurance
• Escrow funds

Some no closing cost refinance loans come with prepayment penalties to steer borrowers away from refinancing the loan quickly for a lower interest rate. Check the rules of the loan to make sure there are no prepayment penalties.

### Where to shop for no closing cost loans

Traditional lenders, such as banks and credit unions, as well as other private lenders, may offer a refinance mortgage with no closing costs. You can compare current refinance rates with the online comparison tool by LendingTree, our parent company, but you’ll need to talk to a mortgage loan officer to determine what your refinance with no closing costs would look like.

If you have kept up with your mortgage payments but have little or no equity in your home to qualify for refinancing your mortgage, the federal Home Affordable Refinance Program (HARP) can help. If you qualify, you could refinance with a low interest rate and favorable terms. HARP also does not require a minimum credit score and will roll closing costs into the new loan.

## Beware of closing cost scams

While refinancing your mortgage, you may receive emails that appear to be from your lender asking you to wire them closing costs. Do not respond, the Federal Trade Commission (FTC) warns, as this is a phishing scam trying to get your personal information and empty your bank account. This scam begins when hackers break into homebuyers’ or real estate professionals’ email accounts and steal information about real estate transactions they are working on.

You should never send financial information by email, the FTC warns.

### How to save on closing costs

If you’re worried upfront closing costs will make refinancing your mortgage too expensive, shop around. Closing costs can vary widely by lender and location, and remember that they’re negotiable. The more options you research, the better you will be able to choose the deal that allows you to pay the least for closing costs.

Marty Minchin |

Marty Minchin is a writer at MagnifyMoney. You can email Marty here

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# The Ultimate Guide to Secured Business Loans

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Opening or expanding a small business usually involves a significant financial investment, whether it’s paying for building renovations, computers or additional inventory. For new business owners with ambitious plans, this type of investment often requires more capital than they have on hand, and existing businesses may not have enough cash available to grow while continuing to pay regular operating expenses.

One common solution is a business loan, which can be secured from banks or other private lenders for more favorable terms and lower interest rates than unsecured loans.

In this guide, we’ll cover:

## Part I: Understanding Secured Business Loans

Business loans typically are secured or unsecured, and the type of loan that you can qualify for will depend on market conditions, your credit score, your assets and your business’s profitability and outlook.

Secured business loans require collateral – as much as 80 percent or more of the loan’s value, which shows that the borrowers can repay the loan if the business fails or the loan goes into default. That means that business owners need to show the lender that they are willing to take on significant risk, including the possibility of losing their house or business assets, to secure financing for their business venture.

Unsecured loans do not require collateral and typically are easier to qualify for. For secured business loans, on the other hand, lenders look for applicants who are in a position to pay the loan back regardless of the business’s success and are willing to risk their own assets for the business. Applicants also need to have good credit and businesses that are feasible in the current market.

“That’s why [lenders] want people to have a proven track record of doing things responsibly,” says Roman Starns, a business consultant with the Louisiana Small Business Development Center. “[Borrowers are saying,] ‘look, I’m willing to put my home equity in, I’m willing to pledge some real estate, I’m willing to put 20 percent down in cash to make this business work.’

“That’s going to mean they are more likely to run that business well and do well at it. If someone puts nothing into it, they have nothing to lose but their credit.”

Lenders also will investigate whether the business is viable in the current market. An entrepreneur who wants to open, for example, a VHS repair shop could have a solid business plan and financial backing, but lenders likely will reject the application.

“They are going to look at the market conditions for this loan as well,” says Starns, who has 20 years’ experience as an entrepreneur and small business owner. “No one has VHS anymore. They want to see that this is a workable business and the financial projections on it show that, within reason, you’re going to be able to pay back everything and the business is going to make it. It’s not as easy as, ‘Oh, I have a great idea that’s going to work,’ and you go get a loan for the money.”

## Part II: Types of Business Loans

Traditional lending institutions, such as banks, offer standard secure business loans through a simple application process. Borrowers can apply in person or online, and bank professionals will work with the borrower on the terms and amount of the loan. For applicants and businesses in good financial shape, this process can be quick and easy.

The type of business loan a borrower applies for will depend on their need for cash, financial situation and availability of collateral. Here are some options for business owners considering secured business loans.

### Term loans

Term loans are best for business owners who have a specific, one-time need for cash, such as buying an expensive piece of equipment or financing a major building renovation. A term loan will provide the money up front in a lump sum, and the borrower pays it back over time. These loans typically are approved for established businesses that need extra cash to expand or enhance their services.

The length of the repayment period will depend on the purpose of the loan and the amount of collateral the borrower can offer. Until recently, term loans were offered between two and five years, but now they can be repaid in as little time as six months or as long as 25 years.

Deciding which type of term loan you need depends a lot on how soon are prepared to repay the loan.

#### Up to 2 years: Short-term loans

Short-term loans, which are best for paying for a pressing business need, must be paid back quickly. Terms might require daily or weekly payments, which allow the borrower to pay back the money quickly and minimize financing costs.

#### 2 to 5 years: Medium-term loans

Medium-term loans are ideal for companies that are growing and are optimistic about their future. These loans, which usually are repaid in two to five years, allow business owners to put plans for expansion into action immediately rather than waiting to save enough money to buy equipment or other assets that will allow the business to grow. Medium-term loans can be unsecured or secured, and approval is based on the applicant’s credit score and collateral, if required.

#### 10-25 years: Long-term loans

Long-term loans are designed for businesses that can project growth years. The amount of these loans, which have repayment terms ranging from 10 to 25 years, is dependent on the need, and they can range from several thousand dollars for a small equipment purchase up to \$1 million for buying a building or property.

### SBA-guaranteed loans

It is a common misconception that the Small Business Administration, a government agency that provides assistance to small businesses, loans money to businesses. Instead of making loans directly, the SBA creates guidelines for loans and then guarantees to its lending partners that their loans will be repaid.

The SBA works with several different kinds of institutions, including traditional lenders, microlending institutions and community development organizations. When a business applies for an SBA loan through one of these partners, the partner provides a loan that is structured according to SBA rules and is guaranteed by the SBA.

Because the SBA is a government organization, its rules and practices can change as government fiscal policies adapt to the current economy. It’s important to always check with the SBA for its most current policies and loan programs.

The SBA typically will not offer loans to businesses that can secure financing on their own, and it does not offer grants to new or expanding businesses. It does provide several programs to help borrowers finance different aspects of a business.

• General small business loans: These loans, called 7(a), are the SBA’s most common loan program and can be approved for up to \$5 million, although the SBA states that the average 7(a) loan for fiscal year 2015 was about \$371,000. These loans are assigned low interest rates, and the SBA will guarantee as much as 85 percent of the loan up to \$150,000. Seventy-five percent of loans over \$150,000 are guaranteed. The loans are generally available to small businesses that do business in the United States and have already used alternative funding sources, such as personal savings.
• Microloans: Available for startups and business expansions, SBA microloans are provided through intermediary nonprofit community organizations for up to \$50,000. The average microloan is \$13,000, according to the SBA, and interest rates are between 8% and 13%. Business owners usually are required to pledge collateral and a personal guarantee.
• Real estate and equipment loans: The CDC/504 program offers loans for buying land, improving property, constructing and improving buildings, and purchasing equipment and machinery. Successful applicants will have a feasible business plan, no available funding from other sources, good character, and business projections that show an ability to pay back the loan. Loan amounts are based on how the business will use the money and how closely the business’s plan meets the program’s goals.
• Disaster loans: When businesses suffer losses due to a declared disaster and are in a declared disaster area, SBA low-interest disaster loans are available to replace or repair real estate, personal property, inventory, business assets, and equipment and machinery damaged in the disaster. Owners of businesses of all sizes can apply online, at designated disaster recovery centers, or by mail, and the loan can be repaid in monthly payments or a lump sum. Loans can be approved for up to \$2 million.

A business line of credit works much like a business credit card, allowing the business to access funds as needed and make minimum monthly payments to repay the borrowed money. Through this type of lending, business owners can set their own borrowing and repayment schedules, depending on their cash flow.

Lines of credit are appealing to businesses because they are easier to obtain than standard secured loans, and the business owner does not pay interest until they withdraw money from the credit line. This type of borrowing is best for established businesses with optimistic outlooks, as struggling businesses in danger of failing may leave the owner personally responsible for unpaid debt.

Chris Kline, co-owner of a pillow manufacturing business in Bucks County, Pa., says his business recently took out a \$50,000 line of credit to buy more manufacturing equipment to meet increasing demand for their products. Kline and artist Eric Fausnacht opened the business manufacturing pillows printed with Fausnacht’s artwork five years ago, and Kline helped move the business from arts and crafts shows into the wholesale market.

The application process for a line of credit included a meeting with a bank official, who visited the company on-site and talked at length with the business owners about their company and business projections.

Kline, 45, says that he prefers to borrow conservatively, and he and Fausnacht pledged business assets rather than personal assets to secure the line of credit. While unsecured lines of credit are available for maximums under \$100,000, secured lines of credit typically have lower interest rates and higher credit lines.

“I’m not looking to borrow more than 10 or 15 percent of annual sales,” Kline says. “And I’m confident we will be able to pay that back if something unforeseen happens.”

The new equipment purchased with the line of credit already increased production and revenues enough that Eric & Christopher now has eight or nine full-time employees and additional part-time staff.

### Equipment loans

Many businesses require expensive equipment, such as an X-ray machine or a tractor, to get started. Without revenues from the business, a business owner may not have the capital to pay for the equipment. An equipment loan, which several types of lenders offer, can help a business buy the equipment it needs to begin or expand operations.

Unlike many other types of business loans, the equipment can serve as collateral for the loan and makes the loan easier to obtain. If the borrower can’t make the payments, the lender will repossess the equipment and sell it to recoup some of its losses. Applicants for equipment loans should have good credit and cash available for as much as a 20 percent down payment.

Equipment loans typically come with low interest rates and manageable payments, making them good tools to help businesses afford expensive purchases. Business owners must pay off the entire loan, even if the loan repayment term is longer than the life of the equipment.

### Invoice financing (factoring)

Invoice financing, also called invoice factoring, is an easier way for an established business owner to raise capital than with a standard secured loan. This process allows business owners to sell their outstanding invoices at a discount to a third party, which then collects on them to repay a single-payment loan issued to the business owner.

These types of loans are beneficial for business owners who need cash faster than the repayment deadline on the invoices. Invoice financing can cover cash flow gaps and payroll, for example, and it is low risk because the money comes from completed sales rather than sales projections. The downside is that invoice financing requires substantial fees.

### Inventory financing

Businesses that depend on a steady flow of inventory can use inventory financing to keep their shelves stocked or to buy more inventory for seasonal sales increases. Inventory financing also can help small businesses with cash flow during periods of slow sales.

Inventory financing provides a revolving line of credit that business owners can draw on as needed. The business owner pledges existing inventory as collateral for the loan.

There are several ways to secure a business loan. You can use hard assets for collateral, like a house or a boat; paper assets, like investments and savings accounts; or your own inventory and invoices. We’ll dig into types of ways to secure your business loan here.

If you or your business has significant assets, you likely are a good candidate for a secured business loan. Lenders will consider the amount of collateral you have when deciding on your loan application, as they want to reduce their risk in case you can’t repay your loan. If you default, lenders will take possession of collateral and sell it to regain at least some of the money they lent you.

This is where risk can come in. While your business may be secure when you apply for the loan, downturns in the market or other unexpected events may push a business into hard times. For example, if an unsavory business moves in next door, your customer traffic may slow significantly. If a machine breaks down or needs to be replaced, production could be slowed and orders unfulfilled. Theft and natural disasters that destroy your business’s property also can severely reduce revenues and lead to unexpected expenses.

If unforeseen circumstances result in a business owner being unable to make loan payments, the lender can seize collateral. As a result, a business owner can lose their house, their car or their savings. If the collateral is property belonging to the business, seizure can be just as devastating, and losing significant business assets can cause the business to close.

The payoff for a secured loan, though, will be more flexible loan terms and significant financial savings over time. Borrowers with secured loans will pay lower interest rates and fewer fees, and they may not be penalized for paying off the loan early.

### Hard vs. paper assets

Lenders typically will accept personal and business assets, which a business owner can pledge as collateral if they want to protect their personal property. Either way, borrowers must promise the lender something valuable that can easily convert to cash in the case of default to recoup losses.

Borrowers can pledge two types of collateral: hard assets and paper assets. Hard assets include houses, vehicles, boats and land, while paper assets include stocks, savings, investments, insurance policies and bonds. Lenders also will happily accept cash accounts as collateral, but they will not consider retirement accounts, such as 401(k) plans.

Business assets that qualify as collateral include inventory, insurance policies, accounts receivable, machinery and equipment, and unpaid invoices.

Some lenders may attach a blanket lien to a loan as collateral, and borrowers should be aware of the sweeping consequences this can have if the loan goes into default. Blanket liens give lenders a legal claim to all of your assets, business or personal, if you stop making loan payments.

In many cases, borrowers will be asked to provide a personal guarantee for a secured business loan. This requires the signatures of all principal owners, ensuring that they have assets they can put up as collateral. While the signatures are on unsecured promises, a personal guarantee does allow the lender to take signers’ assets if the loan is not paid. If you don’t have enough assets to personally guarantee a loan, business consultant Starns recommends finding a business partner who does.

Personal guarantees are different from collateral in that they give lenders access to a wide range of assets, while collateral typically specifies assets the lender can seize in case of nonpayment.

It’s important to know what you’re signing when offering a personal guarantee. If you do default on the loan, the lender may release you from the personal guarantee if you ask, and you also could try to arrange with the lender to first sell business assets to satisfy the outstanding debt before they seize your personal assets.

## Part IV: Shopping for a Secured Business Loan

Borrowers can apply for secured business loans at several types of financial institutions. Banks and credit unions offer standard application procedures that include filling out an application in person or over the phone, discussing terms and the loan amount with a loan officer, and working with a business specialist to access funds if the loan is approved.

Business owners can apply for SBA loan programs through partner lenders, which can include banks and community organizations that work within SBA guidelines. Borrowers will need to download and complete an SBA loan application and be prepared to submit documents such as personal background and financial statements, business financial statements, and income tax returns. A list of SBA lenders is available on the agency’s website.

Online lenders typically have faster application processes and can get money to borrowers quickly, but they often come with higher interest rates than traditional lenders. Some online lenders often charge origination and monthly maintenance fees as well.

To compare offers from multiple business loan lenders, check out MagnifyMoney parent company LendingTree.com.

Before business owners begin shopping for a secured business loan, financial advisers recommend realistically assessing their business’s economic situation. Secured business loans come with great personal risk, as a failed business and inability to pay off a secured loan can cost a business owner significant personal or business assets. Online calculators can help borrowers estimate potential monthly payments and make good decisions about what amount of loan they can afford.

Bob Burton, a retired businessman who now volunteers as a mentor for the Charlotte, N.C., office of SCORE, a national organization that provides mentoring and education to small business owners, says he makes sure that clients understand the economics of their idea for a business.

“They have to make the call whether they want to put their money in it,” Burton says. “A lot of people don’t understand what’s involved in starting a business. It sometimes can look very simple, but it can be quite complex.”

Starns advises borrowers to think through how realistic their plan is, including whether they are truly committed to the endeavor and have enough experience to execute it, before taking on a secured loan.

“You’re risking a lot of things,” he says. “Owning your own business is rewarding, but it’s also risky and takes a special mentality to be able to do it.”

Marty Minchin |

Marty Minchin is a writer at MagnifyMoney. You can email Marty here

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