5 Tips for Refinancing Private Student Loans

Are you thinking of refinancing your private student loans? After college, several graduates look to loan refinancing as a way to ease their financial obligations. While refinancing does have several benefits, there are potential drawbacks as well. If you don’t do your homework on your new loan, it could end up negatively impacting your financial life. Keep these five tips in mind to ensure you get the best possible deal.

1. Understand What Loans You Can Refinance

Federal loans typically have a low, fixed interest rate, so it’s not in your best interest to refinance them. Focus on refinancing your private loans to lock in a lower interest rate. Even private lenders can have stipulations concerning refinancing, frequently requiring a minimum balance and that you have no loans with an “in-school” status. Do some research about which lenders can work with the loans you have before attempting to refinance your loans.

2. Know Why And How Your Payment Is Changing

The two biggest ways to lower your monthly payments are lowering the interest rate and extending the repayment term. While lengthening the life of your loan will result in lower payments from month to month, you will eventually end up paying more because of accruing interest. If you’re struggling financially and cannot afford to make your monthly repayments, it may be worthwhile to pay more in the long run to secure lower payments now. Otherwise, it’s in your best interest to make higher payments now with a shorter repayment term to save money over the life of the loan. The best deals will offer a lower interest rate on your loans to lower your payments as opposed to a longer repayment term. Not only will your payments shrink, you’ll pay less money to the lender in the end. To save even more money, continue to pay the same amount you did before to pay off the loan early and save even more on interest.

3. Read The Fine Print

It’s great to refinance your loan to get a lower monthly payment, but your savings may be lost to fees if you don’t know the specifics of your new loan. Make sure you understand all the terms of your contract before you refinance. Also, it’s a good idea to see if your repayment term resets when you refinance. Several loan programs forgive any remaining debt after a certain number of years, and you may lose any progress you make towards meeting that benchmark if you refinance.

4. Check Your Credit Score

Private lenders may be willing to offer you a lower interest rate if you have a good credit score. Your credit score reflects characteristics that signify a responsible borrower who is likely to repay their debt, like a history of making timely payments. Do what you can to repair your credit if it is damaged to get the best possible rate.

5. Look For Incentives

Many private loan programs offer discounted interest rates for participating in special programs such as online billing an automatic debit. Enrolling in these programs is a simple, painless way to get a lower interest rate.

Refinancing can be a great move for some borrowers, and if you carefully research all your options, you could save hundreds or even thousands of dollars on your student loans.

Richard Maxwell

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