Unsubsidized loans are types of loans that are not subsidized by someone or an organization such as the government. The unsubsidized loan calculator can give you an excellent comparison to see whether or not it’s worth getting it.
Before you calculate the loan though, we must differentiate subsidized and unsubsidized loans. A subsidized loan is where an organization—oftentimes the government subsidizes the loan. This gives the lender security as it’s backed up by the government. The best example of these types of loans is VA loans, FHA loans, and USDA rural loans.
On the other hand, unsubsidized loans are the type of loans where there is no subsidy. It’s all up to the lender to decide on the terms as well as decide on whether or not to approve your application.
For example, a typical mortgage would require you to have a 20% down payment. This is 3.5% for FHA loans if your FICA credit score is above 580. If less than 580, the down payment is still lower than an unsubsidized loan at 10%. This is an easy summary of subsidized and unsubsidized loans.
Origination Fees and Accrued Interest
There is also another area of most subsidized loans. While unsubsidized loans will charge you origination fees, this is frequently not the case with subsidized loans. The lenders don’t charge origination fees for processing the loan when granting it. You are mostly exempt from such fees when getting a subsidized loan.
There is another aspect of why subsidized loans are going to help your budget. A subsidized loan won’t accrue interest at times. For example, if you get a subsidized student loan, the interest won’t be accrued if you’re in school for at least half-time or during deferment periods.
Having all that said, not only you will get more in your hands without paying the origination fees but you will also not pay accrued interest at certain times.
This brings us to the payments you will make to repay the loan. Since there is not going to be origination fees and accrued interest overtime at certain periods, your monthly payments will be lower. This is why subsidized loan repayments are lower.
Understanding Unsubsidized Loans
While these sound good and all, unsubsidized loans do not offer such things. Therefore, the monthly payments are going to be more than a subsidized loan as well as the total amount paid repaid.
If you can get your hands on a subsidized loan, it might be a better option but it isn’t available for everyone. If you make too much money or you don’t qualify for a subsidy, the unsubsidized loans are what’s going to be available to you.
Calculate your unsubsidized loan monthly repayments, origination fee, and accrued interest over time.