Cost of Borrowing

"Cost of Borrowing" submitted by SchoolGrantsfor Editorial Team and last updated on Thursday 28th April 2011

WAIT A MINUTE! I borrowed more than this! Your loan check comes in and you see less. What happened? Loan process administrative fees are deducted from your loan proceeds. These fees are generally what it costs the loan provider to process your application and loan money.

Fees vary by loan program and also include insurance fees. You should inquire about the fees associated with each loan, as some loan providers will discount their fees to get your business.

WOW! How much do I Owe? I only borrowed this much -- why do I have to pay so much back?
ANSWER: Interest

Interest is what lenders charge for the use of their money and to cover their costs for servicing your loan until it's paid in full. Let's face it, would you lend out your money for free? The great thing about a federally guaranteed loan is that lenders can offer you a lower rate than you could typically get on your own, because the federal government is involved, which helps keep the interest rates lower. The total amount you repay will be your original loan(s) amount and the cost of interest accrued over the time you repay the loan(s). You can reduce the amount of interest you pay by paying the loans off as quickly as you can.