# Understanding the Basics of Interest Rates for International Student Loans

Understanding international student loans and everything they entail can be a very difficult task. Perhaps one of the more important aspects to understand about international student loans is interest rates, doubly so it comes to understanding how to repay your international student loan. Interest rates, generally speaking related to international student loans, are what you pay on top of the principal amount due. For a full general overview of international student loans, please follow this link.

## How are Interest Rates Used?

When it comes to repaying your international student loan, the repayment amount is made up of both the principal and the interest rate. The principal amount is the amount of money that you borrowed. For example, if you borrowed \$100, and had to pay it back over a period of 1 year at no interest, each month you would pay \$8.33. With this example, you would only be paying back the principal of \$100.

If you borrowed \$100 and had to pay it back over a 1-year period with a 10% interest rate, each month you would pay \$8.79 for a total of \$105.48. With this example, you would be paying back the principal of \$100 plus \$5.48 of interest.

## What Exactly is an Interest Rate?

Generally speaking, there are two types of interest rates. There are fixed interest rates, and there are variable interest rates.

• Variable Interest Rates are connected to what is known as an index (LIBOR is an example of this) and are subject to change throughout the duration of the international student loan. Most of the time, there is a range on the loan that this variable rate cannot go outside of, but that ultimately will depend on the lender and the loan program that you have been accepted into.
• Fixed Interest Rates stay the same throughout the duration of the loan and the repayment period. It is not tied to an index, and therefore is not subject to fluctuation like a variable interest rate may be.

Lenders typically attach one of these two types of interest rates to international student loans, but that depends on both the lender and loan program that you have been accepted for. We strongly suggest openly communicating with your lender about what your interest rate may be and knowing whether it will be a fixed or variable rate. For a better understanding of international student loans, follow this link.

## What Will My Interest Rate Be?

The interest rate on your international student loan will depend on the lender you borrow from and may also depend on the exact loan that you have been approved for. Understanding what your interest rate is, along with whether it is a fixed or variable rate is extremely important in order to know what your eventual repayment installments will be.

Thankfully, when you sign your loan, you will not be doing so blindly. You will be disclosed important information, including the interest rate. Ultimately, it will be up to you to know this information before agreeing to any loan.  Please communicate with your lender so that you fully understand the interest rate and the complete repayment terms of any approved loan.