The term “interest” refers to the price lenders charge to lend money. Generally, interest rates are quoted on an annual basis and represented as a percent. The annual rate is converted to a periodic rate, typically daily, and is multiplied by the amount of debt outstanding to calculate the amount of interest that accrues. Payments on your loan are generally applied first to interest that has accrued, and the remaining amount reduces the amount of principal you owe.
There are two main types of interest rates available: fixed rates and variable rates. Fixed rate loans have a set interest rate that does not change for the life of the loan. The rate of interest and your monthly payments will be the same throughout the life of the loan.
Because fixed rates increase risk for lenders, fixed interest rates tend to be slightly higher than comparable variable rate loans.
Variable rate loans have an interest rate that resets at certain intervals of time, typically monthly, quarterly, or annually. As rates change, the amount you pay each month will also change. Because the borrower assumes some of the risk of increasing interest rates, lenders tend to charge lower interest rates at the start of variable rate loans in comparison to fixed rate loans.
Take a look at the example below, which compares several different types of student loans with a Brazos Refinance Loan.
How much can you save? Use our Refinance Calculator to compare your current student loans with a Brazos Refinance Loan.