The Credit Aid loan application is paid out without interest so that borrowing does not initially appear to make sense for repayment. Nevertheless, a loan for the Credit Aid repayment makes sense in individual cases, since early repayment of the loan debt is associated with a significant reduction in the amount to be repaid. The partial amount of a Credit Aid loan that has not yet been repaid is not included in a Credit Bureau report because, unlike private student loans, the Credit Aid is not reported to the credit protection association.
How much discount is there for early Credit Aid loan repayment?
If the Credit Aid loan amount is repaid early, the state waives up to fifty percent of the loan amount. However, the calculation is based on the total amount, while the redemption is only capped at ten thousand USD after deduction of any discounts. With a loan amount of 20,000 USD and more, an early repayment is not sensible despite a reduction of fifty percent of the debt, since the remaining amount amounts to more than ten thousand USD and therefore no financial advantage is given.
The former student then paid off his student debts to the state at an early stage, but must pay interest on the loan for the Credit Aid repayment. With a Credit Aid debt amount of less than 20,000 USD, however, early repayment of the Credit Aid is worthwhile, as the repayment benefits of the former student decrease. For amounts below 9500 USD, the discount for early repayment of the Credit Aid loan is less than fifty percent.
Take out cheap loans for Credit Aid repayment
The borrowing for the repayment of the Credit Aid leads to a relief for the former student with a total borrowing through the Credit Aid of less than 20,000 USD. The exact savings thanks to the early repayment of the Credit Aid by means of a loan can be compared by comparing the less repayable amount with the cost of the loan. A rough calculation already shows that the borrowing makes sense for the Credit Aid repayment.
A loan for the Credit Aid repayment should be available at an interest rate of five to six percent, so that it is immediately apparent that the loan costs are less than the savings in the repayment of the Credit Aid. Former students can find a correspondingly cheaper loan for Credit Aid repayment by comparing different offers.
The use of the overdraft facility for the Credit Aid repayment only makes sense in view of the high overdraft interest and the additional accrued interest calculation if the account settlement is possible within two to three years. If former students plan to take out further loans, they have to consider that the loan taken out for the Credit Aid repayment is included in a future Credit Bureau report, which makes later borrowing more expensive.