Private student loan interest rate?

Have taken $4000 private student loan. Margin is 4.0%.Variable rate is prime rate +4.0%. What's interest rate?

• Answer:

  Keep in mind how a variable interest rate works... At various times (how often is explained in the promissory note you signed), your interest rate is reset. It may reset every month, it may reset 4 times a year in January, April, July and October - whenever it resets, that's the interest rate that is applied to your balance from that point until the rate resets again. As of today, the Prime Rate is 5.00 percent. If your loan has a prime rate PLUS 4.0 percent rate, your interest rate, as of right now, is 9.0 percent. Interest will accrue on your balance at a rate of 9 percent until the next reset point for your rate - again, I don't know when that's going to occur - you need to check the promissory note you signed to see when your rate resets. Be very careful with this loan - you did not mention if the interest rate is capped. The prime rate is a volatile index - it has been as high as 21.5 percent in the last 30 years. Over the lengthy repayment period of your loan, you can expect to see the prime rise and fall, sometimes significantly - just one year ago today it was 8.25. If the prime were to reach 8.25 percent in the near future, you would be paying 12.25 percent interest on your loan - now you're heading into credit card type rates. Variable rate private student loans are a financial risk to the borrower. Borrow as little as you possibly can using this form of "financial aid". Good luck to you.