The process of refinancing student loans is quite straightforward: compare rates and apply for the best offer. If you are accepted, the lender will settle your previous debt and provide you with a new loan that should be more reasonable overall, ideally with a lower interest rate.
Thankfully, browsing offers is simple and doesn’t lower your credit score. Here’s a step-by-step guide on how to refinance student loans.
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If you can get a better interest rate on your private student loans, you should refinance them. Since refinance lenders normally don’t charge upfront fees, a lower rate can help you make monthly payments smaller, save money on interest, or do both.
Here are three potential benefits of refinancing private student loans.
Save money
Saving money is the main justification for refinancing private student loans. Reducing your interest rate can lower your total repayment amount, your monthly payments, or both.
Let’s take an example where you have a $35,000 private loan with a 2012 interest rate and 2010 years left to pay it back. Approximately $502 would be your monthly payment, and you would pay back $60,258 in total, plus interest.
Through refinancing at a 7% interest rate and selecting a 2010-year repayment term, your monthly payments would decrease to approximately $406 and your total repayment amount would reach $48,766%20%E2%80%94%20saving you more than $11,000 in total.
Change repayment terms
If you would like to modify the terms of your loan repayment, you might want to consider refinancing your private student loans:
- Simplify repayment. You can consolidate multiple private student loans into a single refinanced loan and make a single payment if you have multiple loans. Although lenders may refer to this as private student loan consolidation, refinancing is the same term used here.
- Stretch out repayment to decrease monthly payments. Refinancing can reduce your monthly payments by extending your repayment term to as long as 20 years, in addition to lowering your interest rate. Reducing monthly payments could free up funds for other objectives, such as retirement savings or a down payment on a home, or for necessities. It could also help improve your debt-to-income ratio. However, since more interest will be charged, extending your repayment period will probably result in higher total payments.
- Shorten repayment to save on interest. You can refinance and select a shorter repayment schedule than you currently have if you want to pay off student loans quickly. This will likely increase your monthly payments. Additionally, you can expedite repayment by increasing your current private loan payment. Student loan lenders don’t charge prepayment penalties.
Choose a different lender
By refinancing, you can move to a new lender if you’re dissatisfied with the repayment options or customer service provided by your current loan holder. This alone isn’t a compelling argument in favor of refinancing, particularly if doing so will result in higher costs.
But you may enjoy more benefits with another lender. For instance, you might be able to benefit from various payment schedules or postponements, or you might be able to release a co-signer earlier. Certain lenders provide even more unusual benefits, such as prepayment rebates, one-on-one career coaching, and referral bonuses.
Private loans can only be transferred to other private lenders—not to the federal government.
Research refi options now
There’s little downside to refinancing private student loans. Depending on the interest rate you are eligible for and the repayment plan you choose, you may end up paying more interest over time. However, a lot of refinance lenders allow you to select repayment plans that are quite short—for example, five or seven years.
Refinancing may result in the loss of certain benefits, such as payment postponements in the event that you return to school.
Programs like income-driven repayment and loan forgiveness are probably not going to be lost on you. Those perks typically only apply to federal student loans. If you believe you will need them, you can refinance only the private portion of your federal student loans if you have both federal and private ones.
How to refinance private student loans
Once you’ve determined which refinance lender is best for you, apply for a refinance of your private student loans directly with them. Your new lender will settle your previous loan and provide you with a new one if you satisfy the eligibility requirements and your application is accepted.
FAQ
Is there any way to get out of private student loans?
Bankruptcy Filing: In bankruptcy, you can get your federal and private student loans discharged. Because of the effects bankruptcy can have on your credit and the expenses and time associated with filing for bankruptcy, it is frequently seen as a last resort.
Can I transfer my private student loan to another lender?
But you can’t just ask a different lender to accept your debt on the same terms. You must apply for a new student loan in order to transfer your existing one and move the balance to a different lender. Along with a few other options, you can think about refinancing or consolidating your debt.
Can I refinance a Sallie Mae student loan?
We don’t offer consolidation or refinancing at this time. We advise you to think about how these decisions might affect the benefits of your student loans and the overall cost of your loans.
What credit score do you need to refinance private student loans?
Although it varies from lender to lender, you typically need a credit score of 680 or above to refinance your student loans. Better credit scores increase your likelihood of being approved for a loan with a reduced interest rate. Lenders take into account various factors, such as your repayment term and DTI, in addition to your credit score.
Read More :
https://www.nerdwallet.com/article/loans/student-loans/refinance-private-student-loans
https://www.lendingtree.com/student/how-to-refinance-student-loans/