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I know several of the SDN members are finance majors, so I thought I'd ask your thoughts on the following:
I need to borrow $30,000 in private loans for my first academic school year but I can't decide which loan vender to use. Citibank has offered me the loan for prime rate + 0 for both in school and repayment (so 8% with no fees). Key Bank has offered me the following with no fees: (the libor rate is 5.42 as of this quarter)
Variable Quarterly: tied to 3-Month LIBOR plus 2.65% in school and:
10-Year Term = 3-Month LIBOR plus 2.75% during repayment
15-Year Term = 3-Month LIBOR plus 3.00% during repayment
25-Year Term = 3-Month LIBOR plus 3.50% during repayment
Both loans will fluctuate each quarter as the rates change accordingly with the economy and market. MY question to all the knowledge finance people is what loan is a better deal. At first glance the Key bank loan looks more appealing (cheaper interest) but I've read from several sources that the Prime rate raises more quickly than the Libor and doesn't recess as quickly when the market improves; whereas, the Libor rate concisely followes market fluctuation -both rising and lowering. Here is an excerpt from the financial aid website (http://www.finaid.org/loans/privatestudentloans.phtml):
"The Prime Lending Rate tends to be 2.5% to 3.5% higher than the LIBOR rate and 2.8% to 4.0% higher than the 91-day T-Bill. For example, the 3 month LIBOR for July 1, 2005 through September 30, 2005 was 3.38%, while the Prime Lending rate was 6.00%. The LIBOR rate tends to be slightly above the 91-day T-Bill rate and to track changes in the 91-day T-Bill rate. The Prime Lending Rate tends to be somewhat more volatile than the LIBOR rate. The general trend with the Prime Lending Rate is to lag decreases in bank cost of capital but to immediately reflect increases. The spread between the Prime Lending Rate and LIBOR is increasing, meaning that over the long term a loan with interest rates based on LIBOR will be less expensive than a loan based on the Prime Lending Rate."
After reading this excerpt, what loan seems like a better choice. The Prime rate loan is lower but apparently more volatile. The Libor Rate has a substantially higher repayment rate, but is it worth the almost 1% difference for it's stability???? Any suggestions would be great. I'm sure other people have run across the same scenario. Thanks
I need to borrow $30,000 in private loans for my first academic school year but I can't decide which loan vender to use. Citibank has offered me the loan for prime rate + 0 for both in school and repayment (so 8% with no fees). Key Bank has offered me the following with no fees: (the libor rate is 5.42 as of this quarter)
Variable Quarterly: tied to 3-Month LIBOR plus 2.65% in school and:
10-Year Term = 3-Month LIBOR plus 2.75% during repayment
15-Year Term = 3-Month LIBOR plus 3.00% during repayment
25-Year Term = 3-Month LIBOR plus 3.50% during repayment
Both loans will fluctuate each quarter as the rates change accordingly with the economy and market. MY question to all the knowledge finance people is what loan is a better deal. At first glance the Key bank loan looks more appealing (cheaper interest) but I've read from several sources that the Prime rate raises more quickly than the Libor and doesn't recess as quickly when the market improves; whereas, the Libor rate concisely followes market fluctuation -both rising and lowering. Here is an excerpt from the financial aid website (http://www.finaid.org/loans/privatestudentloans.phtml):
"The Prime Lending Rate tends to be 2.5% to 3.5% higher than the LIBOR rate and 2.8% to 4.0% higher than the 91-day T-Bill. For example, the 3 month LIBOR for July 1, 2005 through September 30, 2005 was 3.38%, while the Prime Lending rate was 6.00%. The LIBOR rate tends to be slightly above the 91-day T-Bill rate and to track changes in the 91-day T-Bill rate. The Prime Lending Rate tends to be somewhat more volatile than the LIBOR rate. The general trend with the Prime Lending Rate is to lag decreases in bank cost of capital but to immediately reflect increases. The spread between the Prime Lending Rate and LIBOR is increasing, meaning that over the long term a loan with interest rates based on LIBOR will be less expensive than a loan based on the Prime Lending Rate."
After reading this excerpt, what loan seems like a better choice. The Prime rate loan is lower but apparently more volatile. The Libor Rate has a substantially higher repayment rate, but is it worth the almost 1% difference for it's stability???? Any suggestions would be great. I'm sure other people have run across the same scenario. Thanks
