Repaying student loans is difficult, but it just gets easier over time. While paying for a starting salary can be difficult, each raise creates a little more room in your budget.
There's also a mental boost that comes with the fact that your credit balance continues to decline over time. What once seemed insurmountable now seems within reach, and you're looking for a way to speed up the process.
If you keep paying on time each month, your credit score will go up. If it rises enough, you can refinance at a lower interest rate or a more relaxed payment schedule. Either way, you can now choose loan terms that better fit your financial strategy.
If you are thinking about refinancing your student loan, here are some strategies to determine if this is the right step – and to make sure you are getting the best interest rates.
Decide which loans to refinance
Your student loans will likely be broken up into several smaller loans. You can have federal loans, private loans, or both. The first step is figuring out which ones you want to refinance.
You don't have to refinance all of your loans. For example, if you have both private and federal loans, you can choose to only refinance your private loans.
You should be careful when refinancing federal loans. These loans have other advantages than private loans, such as: B. Income-Related Repayment Plans, Deferment and Forbearance. Public loans (PSLF) can only be granted with federal loans. Private student loans and refinanced student loans also offer leniency access. However, if you are taking advantage of the other benefits of federal loans, make sure you understand what programs you may be giving up if you decide to refinance.
There is no way to reverse federal loan refinancing. So make sure it's worth it. You can always change your mind later. Hence, it is usually better to refinance personal loans before considering your federal loans.
Typically, to refinance with LendKey, you must have a minimum of $ 5,000 in loans and a maximum of $ 125,000 for undergraduate loans, $ 175,000 for graduate loans, and $ 300,000 for medical degrees.
Check the credit score and the report
Before you apply to a lender, check your credit report below AnnualCreditReport.com. Typically, you can only check your credit report once a year for free with the three credit reporting agencies. Due to the COVID-19 pandemic, you can check these once a week free of charge until April 2021.
Check your credit report and look for red marks. This could be late payments, defaulted loans, or invoices that have entered collections. Some of these may be correct, but it is also common to find mistakes.
If you see an error, contact the three credit reporting agencies Experian, Equifax, and TransUnion. It can take several weeks to correct a bug. So take action as soon as you notice it. Check with the credit bureaus regularly to see if the bug has been fixed and make sure the bug has been removed from all three reports.
After viewing your credit report, check your credit score. Typically, you need a score of at least 660 or higher to qualify for a refinance. In general, people with higher credit scores are offered lower interest rates.
LendKey also requires a salary of $ 24,000 or more. If your score or income is lower, consider refinancing with a co-signer. A co-signer is someone who takes legal responsibility for your student loan when you stop paying.
Lenders usually offer a lower interest rate when you have a co-signer because they feel more confident that the loan will be paid back. This is usually a parent, but anyone can become a co-signatory – provided they trust you enough to take responsibility.
Compare prices and conditions
If you are approved for refinancing through LendKey, you may see different offers with different interest rates and conditions. In general, a shorter term means a lower interest rate. A 10-year loan almost always has a lower interest rate than a 15-year loan, for example. While a longer term loan is likely to have a higher interest rate, it does offer a lower monthly payment. This could lead to more immediate financial relief in the short term.
Compare these monthly payments with your current ones and think about how this change could affect your budget, positive or negative. If you currently have an advanced repayment plan, you may see higher monthly payments when you switch to a shorter term.
Some borrowers can afford to make higher monthly payments to save interest money. Look at your budget and see what you can afford. Think about how your finances could change over the next few years, such as if you plan to buy a house, have children, or go back to school.
You can always pay more than the minimum, but you cannot pay less than the minimum. It may be worth it to have a higher interest rate and lower monthly payments to have more flexibility in your budget.
You can use this refinancing calculator to see what your payments can look like. Final prices and terms may vary once you actually apply to a lender.
Choose between a floating rate or a fixed rate loan
A fixed rate loan has the same monthly payment for the life of the loan. A floating rate loan will change from monthly to yearly to accommodate the fluctuations in interest rates in the economy. When refinancing student loans, you have to choose between an adjustable rate loan and a fixed rate loan.
Variable rate loans usually start at a lower rate than the fixed rate loan, but can rise to a higher rate than the fixed rate loan.
See what the highest possible monthly payment will be on the adjustable rate loan and compare it to your current budget. If you can't afford this payment then you shouldn't choose a variable rate loan unless you are willing to make drastic changes in your spending.
Check the interest rates regularly
You can refinance your student loan multiple times if interest rates change or if your credit score improves. If you see something in the news about falling interest rates, you can check to see if refinancing makes sense. Some people find that once a year refinancing student loans makes sense.
In contrast to refinancing a mortgage, there are usually few or no fees involved in refinancing student loans. Hence, refinancing doesn't often hurt. If in doubt, you can also enter some numbers.
Zina Kumok (99 posts)
Zina Kumok is a freelance writer who specializes in personal finance. As a former reporter, she has covered murder trials, the Final Four, and everything in between. It has been featured in Lifehacker, DailyWorth, and Time. Read how she repaid $ 28,000 in student loans at Conscious Coins in three years.