What is student loan refinancing? Student loan refinancing is a way to lower the interest rate on your student loans. It’s not a new concept, but it’s getting more popular as students and parents wonder if they can get a better deal than what their credit union or bank offers.
So the answer is yes – and maybe even no—depending on your situation.
What is student loan refinancing?
Student loan refinancing is a process that allows you to lower your monthly student loan payments and save money on interest.
Student loan refinancing can be done in two ways:
- Refinancing with a private lender, who will issue you new loans with different terms and repayment plans.
- Consolidating your existing loans into one single payment. Both methods reduce the amount of interest that you pay each month and shorten the length of time it takes to pay off your debt.
What are the times when it makes sense to refinance student loans?
You may want to refinance your student loans if:
- You are in a low-interest rate environment. If you have a loan with a high-interest rate (e.g., 7%), refinancing can help lower your monthly payments and save you money.
- Your current loan has a high balance. If your balance is more than $5,000, refinancing can help lower your monthly payment and save money on interest over time by extending the life of the loan. However, keep in mind that interest rates sometimes decrease when you refinance; they could go up instead!
- You have multiple loans with different lenders. Refinancing allows you to consolidate those loans into one single monthly payment at a more favorable interest rate while also reducing origination fees that many lenders charge upfront when they make new loans available for purchase by investors looking for investments that yield higher returns than traditional bank checking account deposits or certificates of deposit (CDs).
How do you know if a lender is reputable?
You can check for a license with the Federal Trade Commission. You can also look for complaints about the lender, such as on the Better Business Bureau website.
If you see any reviews with negative comments, there’s a good chance that the lender is not reputable and should be avoided at all costs. “Lantern by SoFi makes it simple to find lenders and compare such loan refinance options.”
Should you use a cosigner?
If you are applying for a loan and your credit score needs to be better to be approved, it is possible that the lender will require a cosigner.
A cosigner is a person who signs your loan agreement with you, agreeing to pay the loan if you do not. In other words, this person offers his or her good name and credit standing as security for repayment of your debt.
What do variable interest rates mean to your payments
With variable interest rates, the lender sets a minimum rate that can change at any time. Your monthly payment will fluctuate with the market, but you’ll only pay what you agreed to in your contract.
In short, this type of loan gives you more flexibility than fixed-rate loans. It allows you to take advantage of any changes in the market without having to worry about paying a penalty fee or any other fees associated with refinancing.
There are many variables to consider when deciding whether to refinance your student loans. However, this article must have given you a solid understanding of what it is and how you can use it to find the best deal for yourself and your family.