What is the difference between subsidized and unsubsidized loans?

What is the difference between subsidized&unsubsidized loans?

• Answer:

  Subsidized and unsubsidized loans exist in almost every sector of the lending industry. The main difference between subsidized and unsubsidized loans is that a third party agrees to pay for a portion of a subsidized loan as well as guarantee repayment to the lender, meaning that if the borrower defaults on the loan, the third party will repay the loan. The most notable examples are student loans. Many students receive a loan as part of their financial aid package. These loans are either subsidized or unsubsidized.Need BasedMost subsidized loans are need based. This means that the loan is offered to individuals that meet a certain income threshold. This threshold will vary from lender to lender and from loan product to loan product. Unsubsidized loans are available to anyone that applies, based on the availability of funds.Interest SubsidySubsidized loans will generally not accrue interest until the repayment period commences. This is because the subsidizing party, usually the federal government, also subsidizes the interest during this period. Unsubsidized loans begin accruing interest from the date of origin.Guaranteed LoanThe main difference between an unsubsidized loan and a subsidized loan is that in a subsidized loan scenario, a third party agrees to pay the loan in full to the lender in the event the borrower defaults. This makes loan funds available to individuals that may not qualify for the loan due to credit challenges or not enough income.Interest RatesInterest rates on subsidized loans are generally lower than on unsubsidized loans based on the fact that the risk is lower to the lender.LimitsLoan limits are generally lower on subsidized loans than on unsubsidized loans.Source:http://www.csus.edu/sfsc-ymm/03_student_loans/sub_and_unsub.htmlhttp://www.staffordloan.com/best/difference-between-subsidized-and-unsubsidized-stafford-loans.php