Should I refinance my student loans? It depends on your situation. But a common reason for people to refinance their student loans is that they want to pay less interest. Even a small decrease in the rate could save you a lot of money over the life of the loan and ultimately help you pay off your student loans faster.
Another reason could be that you want to change the loan type (i.e., switching from a fixed rate to a variable rate or vice versa).
Whatever your reasons for wanting to refinance your student loans may be, you should always compare your student loan rate with other rates on the market. Some lenders always update their rates to make sure they are competitive on the market. So the chance is high that you could get a better deal with another lender.
The best way to compare student loan rates is through LendKey. LendKey’s rate starts as low as at 1.9%. And they have 5, 7, 10, 15 & 20 year loan terms. The great thing about LendKey is that checking your rates will NOT affect your credit score.
What does refinancing your student loans mean?
In simple terms, when you refinance your student loans, you’re essentially taking out a brand new loan in order to pay off your existing student loan. This can get you a better deal and save you money in the long term. The trick is to figure out if it makes sense to refinance.
Should I refinance my student loans? Does it make sense to do so?
When it makes sense to refinance your student loans:
- Lower interest rates are available.
- You have other large debts, such as credit card debts and personal loans, and you want to consolidate all of your loans.
- A major change in your life has happened recently.
- You want to switch to a fixed rate.
When it doesn’t make sense to refinance your student loans
- Your credit score is low and you are less likely to get a good rate.
- You’re no longer have a stable job, and your income is not reliable.
- Your current loan is at a fixed rate.
To decide whether you should refinance your student loans, you should have a reason why you want to refinance. Is it because you want to pay a lower interest rate? Do you want to consolidate all of your loans?
Wanting a lower interest rate on your student loans should not be your only consideration when wanting to refinance. The life of the loan should also be considered, and not just the interest rate. That means, will it be variable interest rate or fixed interest rate. This is important as it can impact your long term financial obligations.
You should also consider the cost of switching to another lender. There are fees, such as application fees and ongoing charges associated with switching to another lender.
Is now the right time to refinance your student loans?
A better interest rate is not the only factor to consider when thinking of refinancing your student loans.
The stability of your job should also be considered. How stable is your job? Can you manage to make monthly payments on your income? If you’ve recently gone part-time, or gone freelancing, now is probably not a good time to refinance your student loans.
Likewise, if you have just switched to a more stable, full time job, you may need to wait for like 6 months or even a year before a bank can consider your loan application.
This is where a financial advisor can be handy, as they can help you make the right financial decision.
It’s also a good idea to talk to existing student loans provider when considering refinancing. Some lenders, in order to keep your business, might try to lower your interest rates or waive some fees for you. They’d be very willing to do that especially if you always make your payments on time and have been with them for a long time.
If you decide to go with another lender, make sure your financial situation is in shape. That means that you don’t have that much outstanding debts such as credit card debts, and that you have always paid your bills on time. This is important not only to get qualified, but also to get a better rate.
When refinancing your student loans make sense
There can be several reasons to refinance your student loans. Perhaps you have a better job, making more money. Or perhaps your current student loan rate is not competitive anymore.
Even if you don’t have any specific reason, it’s always a good idea to know what’s available to you. There might be great deals out there.
Every once in a while, you might want to reassess your student loan rate and compare it to other student loan rate on the market.
One easy way to reassess your options is with LendKey. LendKey is an online platform that allows you to browse multiple low-interest loans from almost 300 community banks and credit unions, instead of big banks.
LendKey allows for more flexibility and lower interest rates. It can help you find the right student loan for you without visiting dozen bank branches.
Plus applying to a dozen of student loans will not HURT your credit score. LendKey does a soft check on you, so you can compare student loans from multiple lenders before you actually apply for one.
Click here to check your rates through LendKey.
Indeed, a lower interest rate and lower repayments are some of the more common reasons to refinance your student loans. Even a slight decrease on your interest rate might make a big difference on your monthly student loan payments.
Indeed any student loan refinance calculator out there can tell you how much you can save.
Another common reason to refinance your student loans might be to consolidate all of your debts and have one monthly repayment. Debt consolidation is when you combine all of your debts so you have one big repayment, instead of several.
If you have other debts such as personal loans, car loan, credit card debts, home loan, then it makes sense to roll these debts together with your student loan. The advantage is that your student loan rate is typically lower.
When refinancing your student loans doesn’t make sense.
There are times when refinancing doesn’t make sense.
For example, if you have built a good relationship with your lender, it might not be a good idea to switch to another lender simply to get a lower interest rate. The new lender might raise your rate once you switch, but you’ve just ruined your good relationship with your old lender.
Another reason you should not refinance your student loans is if you you have been paying for a long time already. Refinancing to a longer term might reduce your monthly payments, but will cost you many more years and more money. So if your current balance is already low, it’s not very beneficial to refinance.
You should also not refinance your student loans if your interest rate on your current student loan is low. There is no real benefit to be had from refinancing an already low interest rate. In fact, you may end up incurring more costs and fees when switching.
Your credit score is low
Refinancing your student loans may not be a good idea if your credit score is low.
While you can apply with a co-signer if you have a low credit score, but it can be hard to find someone to co-sign for you.
So, at a minimum, make sure your credit score is at least 650. If it’s not where is supposed to be, take steps to raise your credit score.
Don’t know your credit score, get a free credit score with Credit Sesame.
Bottom line
If you’re asking yourself: “should I refinance my student loans?” The answer is: it depends on your unique situation. But there are great benefits to refinancing your student loans. To reiterate, it can save you thousands of dollars over the life of the loan; it can reduce your loan payments significantly. However, before deciding to take the plunge you have to make sure you’re getting a better deal.
After you have checked your rates, you should definitely refinance your student loans. Not only will you get a reduced interest rate, you will also get a lower monthly payment and pay less over the life of your loan.
Plus when you’re approved for a loan you applied through Lendkey, you’ll get a $100 bonus after the loan is disbursed.
Read More:
- 5 Tips To Pay Off Your Student Loans Faster
- How Much Should You Save A Month?
- Buying A Home For The First Time? Avoid These Mistakes
Work with the Right Financial Advisor
You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). So, find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.