Should you refinance your student loans?
Refinancing a student loan can be a lifesaver for many borrowers and it is an important financial decision. Many experts would consider it as important as when you take out your original loan. It can take time to understand when itâ€™s best for you to refinance and the process can be confusing for some. Weâ€™ve laid out a couple reasons to help you make the best decision for your situation. Keep in mind that all of these reasons are referring to private loans, it is almost never beneficial to refinance federal student loans.
Lower Interest Rate
If your financial situation has improved or if average interest rates are lower, itâ€™s likely you could get a lower interest rate if you refinance. It isnâ€™t always guaranteed that your interest rate will go down, but it never hurts to find out for yourself. If the difference between your rates is large, it could mean huge savings to you over the years. Unlike when you first apply for a student loan, many private lenders donâ€™t charge additional fees, like application or origination fees. This means that the risk is low for finding out what potential rates you could qualify for.
Better Loan Terms
Another reason to refinance a student loan is to change the amount of time you have to pay back the loan. Refinancing for a longer loan term could lower your minimum monthly payment and reduce your overall debt burden. This could be useful if youâ€™re looking to make a large purchase in the near future, want to lower your monthly expenses or want to reduce your debt-to-income ratio. One word of caution though, the longer you take to pay off the loan, the more youâ€™ll pay in interest in the long run.
Remove a Co-signer
Many students take out student loans with the help of a parent or guardian. Many borrowers need a co-signer for a bunch of reasons including they are minors or just donâ€™t have enough credit or income to get approved on their own. One day you might seek to remove the co-signer from your loan either because you want to be solely responsible for your finances, take the weight of your loan from your co-signerâ€™s shoulders, or improve your co-signerâ€™s DTI ratio by removing the open loan from their credit report. For some borrowers, their credit score today is actually better than their co-signers so this opens them up for the opportunity to get a lower interest rate and better terms.
Consolidate Student Loans
Having multiple loans from multiple institutions can give most borrowers a hard time keeping track of all those payments so refinancing multiple loans under a single financial institution can really streamline paying bills. By refinancing, you can considerably consolidate your student loan debt through combining all of your existing loans into one single loan. Rather than logging into several lender portals each month, you can have peace of mind paying your loan back under one lender.
These were just a few of the reasons that most borrowers consider refinancing. We know that each person is unique and everyone has a different financial situation so these are just some commons thoughts to consider. If you are still confused about whether refinancing is right for you, be sure to contact us directly with any questions you have or schedule a free consultation with one of our student loan experts.
If refinancing feels right for you, apply today!