What You Should Know before You Refinance Your Student Loans

If your grace period is about to expire and enter repayment status, here is what you should know before you refinance your student loans. As someone who has graduated college with the help of student loans, you are likely to have several thousand dollars to pay back now. Refinancing your student loans is a great way to consolidate your monthly payments into one and save money on interest in the process. The interest rate you end up with will depend on your credit rating, so if your credit is less than favorable, a student loan refinance may not be your best option.

Your Credit

The first thing you should do before you decide to refinance your student debt is check your own credit rating. If you find that your credit score is not as good as you would like and fear getting too high of an interest rate, you can hold off on refinancing your student loans and work on improving your credit score. Even a couple of points on your interest rate could mean a lot of money over the life of the loan repayment. While you are trying to improve your credit score for a lower interest rate, it is important not to acquire any new debt.

Federal Student Loans vs. Private Student Loans 

Many students have a combination of federal student loans and private student loans. When you refinance those loans, it is best to keep them separate. Typically, federal student loans have a lower interest rate than private student loans and thus should not be refinanced into one consolidated loan through which you will lose the advantage of the federal loans’ lower interest rate.

Discounted Refinance Rates

Lenders who specialize in refinancing student loans sometimes offer discounted interest rates and other promotions to student borrowers who select an automatic debit option to make their payments. Additionally, if you pay early, you have the chance to receive significant discounts and incentives from the lender as well.

Eligibility

While different lenders have different eligibility requirements for refinancing student loans with them, some requirements are universal or very common. Your student loans cannot be currently paying for your education, that is, they cannot be in an “in school” status. The loans must be in repayment status. Some lenders also require a minimum dollar amount on the student loans in order to get a refinance loan.

Lowering Your Monthly Payments

If you hope to lower the amount of your monthly payments while repaying your student loans, check with your lender about extending the duration of your loan. This option does increase what you pay over the life of your student loan repayment, however, as you will ultimately pay more interest over a longer period of time.  

The best thing to do is check with more than one lender to see what they can offer. You should be sure you are choosing the right lender for your specific situation and that you get a payment you can afford under loan terms you can live with, especially if you have a lot of debt to pay back.


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