How to decide if refinancing a student loan is right for you
If you want to save money on your student loans – federal and private – student loan refinancing can be a good option. Taking out a new student loan with, hopefully, a lower rate and lower monthly payments can get you off your student loan debt faster.
This can free up more money to spend on your other financial goals. However, depending on whether you have private student loans or federal student loans and your unique financial situation, refinancing could be a bad idea.
Before refinancing your student loans, be sure to weigh the pros and cons and make sure you understand whether it will suit your personal financial situation. If you want to refinance your student loan, visit Credible to compare student loan refinancing rates.
When Is It A Good Idea To Refinance A Student Loan?
Here are some scenarios where refinancing your student loans might be a good idea:
1. You can get a lower rate
When a student lender reviews your application, they take into account factors such as your credit rating, debt-to-income ratio, and income. If you have a good to excellent credit score (670 or higher) and a decent income, you may qualify for a rate lower than your current rate. This can help you reduce the amount of interest you pay over the life of the loan.
2. You can save money
In addition to securing a lower rate, refinancing your student loans might be a better choice if you can actually save money by refinancing them. For example, if your new student loan has a term that doesn’t lengthen your payments or increase the amount of interest you pay over the long term, it might be a smart move.
If you want to refinance your student loans, visit Credible to be prequalified for student loan refinancing.
When Is It A Bad Idea To Refinance Student Loans?
Here are some scenarios where refinancing your student loans might be a bad idea:
1. You can’t get a lower rate or save money
If you have fair or bad credit and minimal income, it decreases your chances of being approved for a new loan. And even if you’re approved, you’re less likely to get the best interest rate. When this is the case, it is probably a good idea to find out what is affecting your credit score first, and then wait until it improves on soft credit to qualify for a higher rate. advantageous.
Alternatively, you can try to refinance your loans with a co-signer who has a high credit score and a decent income.
Plus, refinancing your student loans can be a bad idea if you’re not really saving money. This can happen when your new loan has a longer loan term, which increases the amount of interest you pay over the life of the loan.
2. You have federal student loans
Since federal student loans usually come with protections for borrowers and options for canceling student loans, it’s generally not a good idea to refinance them.
Federal student loan protections include income-based repayment options, forbearance and deferral options, and borrower defense. An income-based loan repayment plan gives you the option of reducing your monthly student loan payment if your income decreases. Forbearance and deferral give you the ability to suspend your student loan payments.
The borrower’s defense allows some borrowers to have all or part of their loans canceled if a school engages in inappropriate content or misleads them.
Currently, some federal loan payments are suspended until September and the interest rate is zero percent. If your student loans are subject to this emergency forbearance, refinancing now is not a good idea.
Use a refinance calculator to estimate your potential savings
The savings you realize by refinancing your student loan depend on how the rate and terms of your current student loan compare to the rate and terms of your new student loan. For example, if you refinance a student loan of $ 10,000 with an interest rate of 6.8% and a term of five years with a new loan at an interest rate of 4.25% and of the same term , you could save about $ 706 in interest payments.
If you’re curious about how much you could save with refinancing, use a online student loan calculator. Credible can also help you determine if the time is right to refinance your mortgage.
The bottom line
Before considering student loan refinancing options, take a look at your financial situation and do the math to see if it makes sense. If you can get a lower interest rate and save some money, it can be a good idea. However, if you can’t get a lower rate or have federal student loans, that might be a bad idea.
If you want to refinance your undergraduate or graduate loans, visit Credible for more information.
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