As well as savings and scholarships, many turn to loan providers to help fund their studies. But choosing the right loan can be tricky.
Here’s 10 things you should consider when getting an MBA student loan.
1. Is it international?
While many aspiring MBAs want to study abroad, banks are reluctant to lend internationally.
For Zonna Norman, securing a loan which would enable her to study outside the US was a big part of her criteria. She opted for Prodigy Finance, a pioneering tuition crowdfunding platform whose borderless peer-to-peer lending model opens up opportunities for international students.
“Without the Prodigy loan, I definitely wouldn’t be able to go to the UK,” says Zonna, who’s starting her MBA at Manchester Business School in August.
2. Interest rate: fixed or variable?
There are two types of interest rate: fixed and variable. The fixed stays fixed, while the variable moves with market rate fluctuations.
Which is better? “A fixed interest rate means that you’ll benefit if market rates go up (and your rate is fixed below the new market rates); but this also means you won’t benefit by accruing less interest if market rates go down,” explains Ricardo Fernandez, head of business development at Prodigy Finance.
“For students planning to pay off their loans in a couple of years, a variable rate is probably the best option as you’ll normally have access to lower rates initially than going for a fixed rate loan,” he continues.
Lenders typically use the stable common variable base rates Libor (London Interbank Offered Rate) or Prime in the US. Most education loans will combine both a variable and a fixed component (or margin).
3. APR (Annual Percentage Rate)
Look beyond the interest rate. It’s not the be all and end all, and it does not tell you the cost of your loan.
When comparing loan offers, APR is the key tool to use. Loan offers will have different terms; different margins, base rates and upfront fees. APR takes all of these into account, as well as the effects of compounding interest, and expresses all of the costs of financing as a single percentage number, allowing you to properly compare one loan offer against another.
Watch the video below to find out more:
4. Can you pay it back?
Very simple. Don’t take out a loan if you know you’ll never be able to pay it back. However, given the average graduate MBA salaries the likelihood is you will be able to.
At Chicago Booth, 95% of MBAs find roles within 3 months of graduation with an average salary increase of 107% according to the Financial Times. At CEIBS, graduates can expect a 157% salary increase. At Lancaster School of Management in the UK, 111%.
In fact, whereas banks base their loan decisions on historical salaries, Prodigy Finance uses a predictive model, assessing an MBA applicant’s future earning potential to determine their loan affordability.
5. Grace period
Although interest will still accrue on your loan, having a grace period, or “payment holiday,” after your MBA gives you time to organize your life, find a job and settle down before you’re obligated to start paying back your loan.
6. Loan Term: short or long?
Some student borrowers like to have the flexibility, and lower monthly repayments, that come with a longer loan term. Yet Ricardo warns against this.
“It’s generally better to pay off your loan as quickly as possible,” he says. “The most important thing to remember is that the longer the loan term, the more interest you will pay: with a 25 year loan you will pay your initial loan three times over due to all the accruing interest.”
7. Early repayment penalties
And with Prodigy Finance, paying your loan back early means that you’re only charged interest on the outstanding loan amount. There are no early repayment penalties.
8. Speed of process
Not needing a co-signer or guarantor can speed up the loan application process considerably. Prodigy Finance do not require a co-signer, and they’ll give you a preliminary loan decision within five days of receiving your application.
9. Customer service
Its customer service follows a similar trend.
“When I had questions, I was surprised by how quickly they got back to me,” says Zonna. “Literally, I would ask a question and the very next day I would get a response.”
10. Do you trust your provider?
Let’s face it: traditional loan providers have a bad rep. And a loan application can mean a minefield of extra costs, clauses, sub-clauses and small print.
Prodigy Finance is different. Prodigy loans are community-funded; by business school alumni, for business school students. And it was founded by three INSEAD MBA grads.
“Sometimes when you go to financing, it’s cold,” Zonna explains. “With Prodigy, I felt like they were trying to work with me. [And] because of people willing to invest in me, I’m able to fulfil my dream of doing an MBA.”
Abdulkamal Abdullahi, a Nigerian student starting his MBA at UCLA Anderson in the US in August, agrees.
“Prodigy ticked all the boxes,” he says. “A favorable interest rate, repayment terms and they did not require a co-signer. Plus, the fact that they’re founded by MBAs pretty much tipped the scales in their favor.”
Prodigy Finance Ltd is an appointed representative of BriceAmery Capital Limited which is authorized and regulated by the Financial Conduct Authority. This document has been issued by BriceAmery Capital Limited as a Financial Promotion under Section 21 of the Financial Services and Markets Act 2000.
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