The idea of refinancing student loans could sound pretty heavy like it will involve lots of numbers and calculations. But in reality, learning how to refinance your student loans is simpler than most government financial aids such as applying for FAFSA.
The process of refinancing includes shopping around for the best rates and finding a good lender and applying for their best deals.
From there, it is only a matter of waiting for the new lender to pay off the old debt and start the new one with good rates.
The option to refinance your student loan can sometimes be intriguing when it comes to your attention that you might end up saving money with less hassle.
Before you are taken by these shiny words, let’s take a moment to look closer, and see clearer.
Should You Refinance?
It must be well-known for you by now that the more qualified you are for a student loan, the more chances you get with a better lender. And yes, I just said a better lender – a lender with lower interest rates in a nutshell.
Imagine getting to pay less every month off your student loan, and having more free cash for other expenses. Or imagine paying off your whole debt faster, and getting to finally be debt-free.
Is It for Me?
Well, if someone shows up and offers you to lower your loan payments and reduce overall costs, I don’t see why not! The thing is: is it for you? Is it worth it?
The answer to those questions is: “It depends”. Before you let the idea grow on you, we’re here to keep you reminded that unless you have a really good reason for refinancing your student loan, the idea might not be as appealing as it sounds.
Before discovering valid reasons why someone would realistically consider refinancing, you surely don’t want to start bothering about that matter unless you are standing in a better financial position than you used to, i.e.: You’ve already got some loans off your shoulder, you got some raise, a more stable income, or your credit score got a real boost.
Otherwise, as long as your conditions are the same, it is better to let it go for a while until you are ready to take advantage of it.
What You Need to Know about Refinancing Student Loans
In order to start seeing why would we consider refinancing, let’s recall some facts about it:
- You can refinance your student loan as often as you wish, with no constraints on how many times you are allowed to.
- Remember the options you got in case you are pursuing a federal loan? Options like Student Loan Relief, Income-driven Repayment, or Public Service Loan Forgiveness? Refinancing is a disqualifier from all similar options.
Reasons to Consider Refinancing Student Loans
So, here are some compelling reasons why one would benefit from this option:
1. You Are Pursuing a Private Student Loan
So, in the light of the facts we recalled, you’ve got nothing much to lose. You’d better take that chance anyway, and refinance as often as you can in order to keep getting lower interests, or shorter payment plans.
2. You Are Pursuing a Student Loan with a Variable Interest Rate
It’s quite favored to seek a fixed-interest loan, of course! Variable-rate loans come with the headache of unpredictability.
The hardest part of managing your personal finances is budgeting, and legit budgeting requires the bare minimum of predictability. It’s highly encouraged in that case to go for refinancing once it is possible.
3. You Are Financially Confident
Let’s say you are finally at a better financial position, and you are highly confident you are going to maintain this level, then you are not only more eligible for refinancing, but also encouraged to pursue it for more savings.
Who Shouldn’t Consider Refinancing?
As good as it may sound, refinancing is clearly not always advised, even if you started to get more qualified for it.
It might sound like stating the obvious, but it is still worth mentioning, you should not consider refinancing your student loans if:
1. You Are Pursuing a Federal Student Loan
In this case, you might not want to lose the previously-mentioned benefits that you might be offered for financial support. You will need to think more than twice before letting go of those options.
2. The Loan Pay-Off Is Excessively Postponed
A possible consequence of reducing your monthly payment can be a longer payment term. If you’re wishing for getting debt-free quickly, this would be absolutely counter-intuitive.
So, What Should I Do?
Do the Research
You need to invest some time doing research to shortlist your best target lenders who offer lower interest rates, hence lower monthly payments, at a convenient payment term.
Doing this homework is a mandatory step towards getting your student loan headache reduced – which is the whole point!
Make the Decision
By the time you have your chosen lender, start filling out the application immediately, and sign all the needed documents.
If you make your proper calculations, you can make yourself a great deal by saving some money or at least freeing it for more expenses instead of debt repayment. You can reduce your interest rate by refinancing your student loan and finding a better loan holder.
The more your credit score, and the more stable your income is, the more likely it is you qualify for lower interest rates with convenient payment terms.
Refinancing is not your only option in case you have a federal student loan. Refinancing a federal student loan makes you lose the original privileges that come with it.
In case you are not changing your lender, remember that you can always speak to your lender about combining your loans into a single consolidated refinanced loan, negotiate longer payment terms with the higher interest rate for lower monthly installment, or negotiate shorter payment terms with the lower interest rate for faster debt-free achievement.
