Commonly asked questions about private loans:
What is credit ready vs. credit worthy?

Someone who is credit worthy has been determined to have the ability to repay the loan based on his/her credit history. Factors in the evaluation may include a minimum monthly income, previous credit experience, credit bureau report and credit score. Someone who is credit ready has no negative credit history. Lenders may lend to a person who is only credit ready based on some other statistical data showing they will have the ability to pay in the future (i.e.- future college graduate).

A credit report is a document produced by a credit reporting agency ( also called credit bureau) that gathers all of a consumers credit history into a brief summary. Lenders use this report as the basis for determining if they will extend credit to a customer. If students have problems or questions regarding their credit, there are three major credit reporting agencies to contact. It is wise to review your credit often, about once a year, to verify all the information is correct. You may now obtain one free copy of your credit report a year. Please take advantage of this offer.
Equifax 800-685-1111 www.equifax.com
Experian 888-397-3742 www.experian.com
Trans Union 800-916-8800 www.transunion.com

Lenders use credit scoring to make fast and objective decisions on which applicants are likely to repay their loans on time. Credit scoring is calculated using many pieces of your past bill payment history (i.e.- number and types of accounts, late payments, outstanding debt, the age of your accounts). The way you have handled your credit in the past is often a good indication of how you will manage credit in the future. Therefore, your credit score is like a snapshot of your level of credit risk at a particular point in time and is predictive of your future credit performance. You may have to pay an additional fee, but your credit score is available through the credit bureaus.

There are several places to go to find the current rates for Prime, T-bill, LIBOR and the other instruments that lenders use to set their interest rates, but we suggest you bookmark the following site: http://www.bankrate.com/brm/ratehm.asp. Many newspapers, like the Wall Street Journal, or other business publications list these rates as well. When you go to the above site there will be many indexes listed. The three main indexes that lenders use for private loans are:
Wall Street Journal (WSJ) Prime
91 day T-Bill
1 month LIBOR
Often times lenders will use an average of these rates over a period of time, so although these rates will be very close, you should consult your lender for exact rates.

Lenders select different indexes (such as LIBOR, Treasury Bill, Prime or Commercial Paper rate) for varying reasons. Lenders main objective is to minimize the difference between their cost-of-funds (COF) and loan yields, to avoid interest rate risk. Cost-of-funds (COF) is the price lenders pay to get the money they lend. The interest rate is the price the customer pays. Therefore, lenders try to select the interest rate index that moves most like their funding rate. If you understand this, you get an A+.