Student loan refinancing rates now start at less than 2%. But here are 5 questions to ask yourself before refinancing
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Refinancing your student loan, especially in the current low interest rate environment – Fixed prices from Credible and serious start at 2.5% or less and variable rates off serious and Loan key start at less than 2% – can be tempting. In fact, refinancing student loans not only saves you money, but also other advantages: “A major advantage and motivating factor of refinancing is the ability to consolidate several loan payments into one,” explains Bankrate financial analyst Greg McBride. Lauren Anastasio, certified financial planner at SoFi, added: “It is always worth researching what refinancing options are available to you if it has been more than six months since the last audit,” says Lauren Anastasio, certified financial planner at SoFi. But just because prices are low doesn’t mean you should be refi. Here is what the professionals recommend you to consider before refinancing your loan.
Take a look at what type of loan you have
McBride recommends refinancing student loans if you a) have a personal student loan and b) your financial situation has improved since taking the loan. “If you now have better credit, lower debt ratios, or higher income, it could all mean that you can take advantage of today’s lower interest rates to lower the interest burden or even combine multiple loans into one payment,” he says. (Would you like to refinance your student loans? Fixed prices from Credible and serious start at 2.5% or less and variable rates off serious and Loan key start at less than 2%)
However, he adds, “Be careful about converting federal student loans into private student loans and losing government protections such as deferral, deferral, or income-based repayment, unless a comparable benefit is available on the new personal loan.” be able to trade in the protection available for federal loans and get hold of good terms to make it worth it, should you do it. “But just go in with your eyes open and you know the tradeoff,” says McBride.
In addition, until September 30, 2021, payments for federal loans have been suspended, interest rates are at 0%, and collections for defaulted loans have been suspended. “Think about that before paying off anything or trying to convert anything into a personal loan,” says Lagrotteria.
Ask yourself these 5 questions
To make sure you hit your financial goals and don’t pay too high interest on your debt, every year you should take stock of your financial life and review everything from your budget to your investments, says financial advisor Francesca Lagrotteria of Payne Capital Management. “This includes searching your debts, especially student loans, and asking a series of questions about your current financial status to determine whether or not you are a good candidate for a refinance,” says Lagrotteria.
These questions are: 1) Has my income changed? 2) Has my credit rating improved? 3) Have I paid off other significant debts? 4) Do I have a degree? 5) Have I completed one of the courses? “If you answered yes to some or all of these questions, you could be a good candidate for refinancing your student loan,” says Lagrotteria.
Don’t just shop for the best prices, but also for the best conditions
You should get price quotes from multiple lenders, says Lagrotteria. And don’t turn down floating rates, at least if you think you can pay off your loans quickly: (For now, Credible and serious all offer fixed prices from 2.5% or less and serious and Loan key offer variable rates from under 2%.) “Interest rates are unlikely to go up anytime soon, so you have some time before that floating rate turns into an albatross, and by then you may have paid off your balance in a significant way,” says McBride.
To get the best interest rates, McBride says, “If your credit history has improved, if your income has increased, or if your debt burden has decreased, all of these could be enough to get you a better interest rate now than you had taken before Loan from. “
Anastasio says it is imperative to understand the fine print on the loan, including hidden or disclosed fees, prepayment penalties, hedges, or any other factor that can add to the cost of the loan over time. And McBride says, “Always, always, always ask about fees and review them. Comparative purchases to get the best conditions can also help you avoid fees. “
Get the right cosigner
One thing to keep in mind when refinancing is that banks want to see a solid credit history before they approve you. “Some younger borrowers have thin or poor credit histories, and because of this, student loan refinance applications often include a co-signer. This could be a parent or legal guardian or someone with better credit who can guarantee the loan and thereby give you approval, ”said Michael Kitchen, editor-in-chief and student debt expert at Student Loan Hero. As with any loan, the potential disadvantage of a co-signer is that if the borrower is unable to pay, they will be liable for the debt. (Would you like to refinance your student loans? Fixed installments Credible and serious start at 2.5% or less and variable rates off serious and Loan key start at less than 2%)
See also: The interest on private student loans now starts at just over 1%. Tempting, but here are 4 things to know before signing up