There may never be a better time to refinance student loans. Here's some advice to follow if you're thinking about a student loan refinance. (iStock)
To bolster the economy during the coronavirus pandemic, the Federal Reserve has set the benchmark interest rate near record lows. With banks able to borrow from each other at an extremely affordable rate, lenders are passing on this savings to consumers. As a result, depending on the type you have, now may be a great time to refinance student loans if you're a well-qualified borrower.
Refinancing can reduce your interest rate, help you remove a cosigner from a loan, and allow you to change other key terms of your current debt. There is one important caveat, however: due to the student loan payment and interest deferment on federal student loans through Sep 30, 2021, it is currently not beneficial to refinance federal loans. If federal student loans are refinanced, borrowers will lose access to this suspension as well as other federal benefits and protections (e.g. income-driven repayment plans and student loan forgiveness programs).
When it comes to refinancing private student loans, however, now may be the time to act. See if you qualify for a private student loan refinance today via Credible. With Credible, you can compare rates and lenders instantly to determine how much you could save on monthly payments and add up savings during your total loan term.
5 ways to save money by refinancing student loans
If you're considering refinancing a private student loan, you'll want to ensure you're making the smartest possible choices when it comes to selecting your new lender, as well as avoiding some common student loan refinancing mistakes.
Here are five key pieces of advice to help with the process to make sure your effort to refinance private student loans is a success.
- Compare rates and lenders
- Use a student loan refinancing calculator
- Check your credit score
- Make sure you have a stable income
- Pay down or consolidate debt
1. Compare rates and lenders
Unlike with federal student loans, there are no standardized rates for private refinance loans. Rates can vary from one lender to another, making it essential that you shop around and compare loan terms to get the lowest interest rate.
You can visit Credible to view a rates table that compares rates from multiple lenders at once to easily find the most affordable option.
SHOULD I REFINANCE MY STUDENT LOANS?
2. Use a student loan refinancing calculator
It's important to understand the math. Specifically, you want to know how both your monthly payments and total payoff costs will change when you secure a new loan. The easiest way to assess the financial impact of refinancing is to use an online student loan refinancing calculator to see how your new loan would affect your finances.
3. Check your credit score
Student loan lenders want to make sure you're a well-qualified borrower. Before they approve you for a refinance loan, they'll check your credit score to see if you have a history of responsible borrowing behavior. Your credit score will determine both if you get approved and the rate you pay, so check your credit before applying.
If your score isn't very high, take some steps to work on improving it in order to maximize your chances of securing an affordable refinance loan. If you want to see where you stand with your current score, plug some of your information into Credible's free online tools.
WHAT ARE STUDENT LOAN REFINANCING RATES?
4. Make sure you have a stable income
Lenders also look at your income to determine if you'll be able to make your monthly payments. If you don't have proof you've been at your job for a while and that your salary has stayed steady, you may not be able to qualify for a student loan refinance.
CAN I REFINANCE PART OF MY STUDENT LOAN?
5. Pay down or consolidate other debt
Finally, lenders look at your other debt obligations before approving you for a loan because they want to make sure you aren't overextending yourself and potentially at risk of not being able to make payments.
If you have a lot of other debt, paying some of it down before refinancing your private student loans could help you get approved. Paying debt down could also help improve your credit score.
You also have the option to consolidate high-interest debt using a personal loan in order to reduce your monthly payment. This improves your debt-to-income ratio, which maximizes your chances of loan approval. That's because lenders don't just look at your total debt in a vacuum but rather compare your monthly payments to your earnings to see how much of your monthly income they take up.
You can visit Credible to compare rates and lenders and to find the best personal loan rate. A personal loan calculator will also help you see how refinancing other debt could affect your monthly payment costs.
HOW DOES DEBT CONSOLIDATION AFFECT YOUR CREDIT SCORE?
By making sure your debt-to-income ratio isn't too high, improving your credit before applying, and shopping around for a low-cost loan, you should be able to take full advantage of today's unique opportunity to refinance private student loans.