<p>i've been narrowing down my possible lenders for my stafford loan and think i'm going to go with M&T Bank..they seem to have the best interest rate reductions but i wanted to double check to make sure i understand what they are...</p>
<p>there is a 3.33% principal reduction after 30 consecutive on time payments...does this mean the interest rate will go down to 3.47% for the rest of the life of the loan? or do they just deduct 3..33% of the interest rate from what i've paid so far and credit it to my loan or something?</p>
<p>there is also a .25% auto deduct interest rate reduction if you use automatic debit with your checkings or savings account...again, does this reduce the interest rate for the life of the loan?</p>
<p>and finally they also say "Life of Loan servicing with our Servicer - Nelnet" does this mean that they won't sell my loan?</p>
<p>A principal reduction is not an interest rate reduction. It means the principal - that is the loan balance - would be reduced by 3.33%. So say you still owed $1,000 - a principal reduction of 3.33% would mean the loan balance would be reduced by 1000 X 3.33%= 33.3. $1000 - 33.3 = $966.70(your new loan balance).</p>
<p>Not nearly as good a deal as an interest rate reduction of 3.33% I am afraid.</p>
<p>in that case, which loan would i end up paying less money (or is it a small enough difference it doesn't matter..)? </p>
<p>1) .25% interest rate deduction for payments through savings account and a 3.33% principal reduction</p>
<p>OR</p>
<p>2) .25% interest rate deduction immediately upon entering repayment and 1.75% interest rate deduction for payments through savings account? (it would end up being a 4.8% interest rate...would a rate this low be more beneficial than having a higher interest rate but a small reduction of the principal loan amount?)</p>
<p>any help would be appreciated (maybe there is a calculator online i could just figure this out for myself?) i hope i'm not over thinking this too much</p>
<p>well next year i am only taking out 3,500 so for now the loan payment is calculated to be less than 50$
in the future i'm assuming i will be taking out more subsidized stafford loans...do these get added to what i have already taken out? or are the loans i take out each year seperate?</p>
<p>"Life of Loan servicing with our Servicer - Nelnet" does this mean that they won't sell my loan?
ans: No. Who buys your loan has no bearing on who services the loan. </p>
<p>M & T Bank is the Producer (seller) and will make a commission. M & T Bank probably is the lender. The loan consists of at least 4 parts: the principal, the interest, guarantor and the servicing. Each part of the loan has an associated cost and is "sold" to investors who want a certain amount of risk-reward. The MT Bank wants to reduce its risk in loans and/or wants to replenish it money pool for further loans and thus will probably sell the loan. </p>
<p>Poor selection and outright fraud will result in our current situation in subprime lending and its resulting consequence to the economy. </p>
<p>Good topic for Business, Econ students, Political Science students.</p>
<p>If I were you, I would go for the program with the bigger interest reduction at the outset. The problem with the principal reduction for 30-consecutive ontime payments is twofold:</p>
<ol>
<li><p>If one payment is late, you lose the deal. It's possible for payments to be "late" through no fault of your own -- even if you have arranged for autopayment -- sometimes mistakes are made and money isn't transferred as it should be, or credited when it should be. So I'm wary of benefits like this -- they can be easily lost. </p></li>
<li><p>You may want to prepay your loan or consolidate loans -- and then you would lose that benefit. For example, lets say that 2 years out of college you get a great end of the year bonus at your job -- you think, cool -- you can pay off all your loans.... but 30 months hasn't gone by, so you never get that 3.33% principal reduction you were promised. An interest rate reduction will give you the benefits of reduced cost from the beginning -- so to me, that's the better deal.</p></li>
</ol>
<p>thanks for the info..however i ended up going with the principal reduction and then afterwards i noticed a brochure for one with only a 4.8% interest rate so it was too late anyways.
maybe i'll make a call and ask if i can switch it real quick before they start processing it...it might not even be worth it anyways.</p>