If you have student loan debt, refinancing can be a smart move – one that can lower your interest rate and streamline multiple loans into a single debt. But before you take this step, it’s important to lay the groundwork to get the most competitive loan possible.
1. Determine if refinancing is the best option
Refinancing a student loan could help you get out of debt sooner and possibly reduce your monthly payment obligations, but this depends on whether you qualify for a good deal. Start by checking your credit reports and credit scores to determine where you stand. You typically need a good credit score, usually defined as a FICO score of 670 or higher, to qualify for student loan refinancing without a cosigner. If your credit isn’t in the best shape, you can work on improving it before you try to refinance.
It’s also important to consider the type of loan you currently have, the remaining loan term, the current interest rate, and your monthly payment. Take into account the advantages and drawbacks before refinancing. Use a student loan calculator to compare your current loan with any new loans you’re considering.
If you have federal student loans and are on the fence about refinancing, proceed with caution. Once you move forward with a private loan, you can’t revert back to a federal student loan to take advantage of the key benefits they offer. Do your homework to ensure you’re making a smart financial move.
2. Research lenders
If you decide to refinance your student loans, the next step is to compile a list of lenders that could work for you. When researching lenders, consider the interest rates they offer, whether they allow co-signers, the type of interest (fixed or variable), bonuses or incentives for refinancing, available payment options, flexibility in due dates and skip-a-payment perks, fees assessed by the lender, and customer satisfaction.
3. Shop for the best loan options
Research student loan refinancing rates and check with at least three lenders on your shortlist to find the best rate. Each lender uses different criteria to determine your borrowing eligibility and interest rates. Your rate will likely vary between one lender and the next and can be impacted by factors like your credit history, the repayment term you select, and whether you choose fixed or variable interest on the loan.
Rate shopping is crucial when looking for a new loan or credit card. In general, the higher your rate, the higher your monthly payments. However, qualifying for a loan at a lower rate can lower your monthly payments. Compare lender rates and fees online before applying to refinance your loans. If a lender offers a prequalification tool, take advantage of it to see the rates and loan terms you might qualify for if you refinanced. This information can help you determine if refinancing would be beneficial in terms of your monthly payment or total interest paid.
4. Submit a loan application
Once you’ve narrowed down your preferred lender and loan offer, complete an official loan application. Even if you went through a lender’s prequalification process, you must complete this before your loan can be approved. The lender will likely run a hard credit inquiry to access your full credit report and will also require additional information. If you’re applying with a co-signer, their information will be needed as well. Provide the lender with necessary documents such as your social security number, driver’s license or government ID, loan payoff statements, proof of graduation, and proof of employment.
Most lenders make it easy to apply online for student loan refinancing in minutes. Upon approval, review and sign your loan documents online for ultimate convenience.
5. Transfer payments to your new lender
After the new loan closes, you will begin making payments on your new loan just like you were with your old one. However, your new lender may not immediately pay off your old loans. Continue making any student loan payments that come due in the meantime to avoid late fees or potentially negative credit reporting. Once your student loan refinance is complete and the debt has been transferred, you should receive a payoff letter from your old lender. Create an account login with your new loan servicing company and begin making payments on your refinanced loan. Check for correspondence from the new lender to identify your first bill due date. Many lenders offer flexible due dates and discounted rates if you enroll in autopay.
FAQs
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Who is eligible for student loan refinancing?
To be eligible for student loan refinancing, you typically need a good credit score and a stable financial situation. Lenders also consider factors such as income, employment history, and debt-to-income ratio. -
How long does it take to refinance a student loan?
The time it takes to refinance a student loan varies depending on the lender and your individual circumstances. It can range from a few weeks to a couple of months. -
Can you refinance federal student loans?
Yes, it is possible to refinance federal student loans, but by doing so, you will lose the benefits and protections associated with federal loans, such as income-driven repayment plans and loan forgiveness programs. -
Can you put student loans in someone else’s name?
In most cases, you cannot transfer your student loans to someone else. However, some lenders offer co-signer release options, which allow a co-signer to be removed from the loan after certain conditions are met. -
Can you refinance student loans with bad credit?
It can be more challenging to refinance student loans with bad credit, but it is still possible. Some lenders specialize in working with borrowers who have less-than-perfect credit scores. -
Does refinancing student loans hurt your credit score?
Refinancing student loans may initially have a minor impact on your credit score due to the hard inquiry required during the application process. However, if you make timely payments on your refinanced loan, it can positively affect your credit score over time.
Conclusion
Refinancing your student loans can be a strategic financial move to save money and simplify your debt. By following these five steps and considering the factors involved, you can make an informed decision that aligns with your financial goals. Remember to thoroughly research lenders, compare rates, and understand the terms and conditions before committing to a refinancing option.