Unfortunately these days more and more people have an overwhelming amount of student debt, and for some it may seem uncontrollable. If you are having a hard time staying on top of your student loan debt, you may have considered the option of refinancing. The good news is that refinancing can help to save you a lot of money in the long run, but before you decide if it is right for you, there are some things that you will need to know.
Lenders Often Require a Minimum Balance on Your Student Loans
When it comes to refinancing your student loans, most lenders are going to ask you to have a minimum balance on your loans. A majority of the lenders will have a minimum balance of around $10,000, but some of them may be higher. Not so sure if this is good news, but a majority of student debtors have a balance higher than $10,000 and will meet this requirement for refinancing. Ask about minimum (and maximum) balance requirements before applying for refinancing.
What are Your Loan Types and Interest Rates?
While refinancing lenders boast excellent interest rates on their loans, it is important to know your current interest rates and loan types. After all, if you can’t get a better rate, is there really any reason to refinance? Most federal student loans have interest rates between 4% and 7%, but private student loans can carry a higher, variable interest rate of up to 15%. Talk to the lender that is currently in charge of your loans and gather this information. It will make it much easier for you to make the best decision about refinancing.
You May Need Good Credit, or a Creditworthy Cosigner
Having good credit is important when you are trying to refinance your student loans. If you have a good credit score, you should have no issues when you apply. If you have less than perfect credit, however, you may need a cosigner. With really bad credit, you may not even be approved at all (even with a creditworthy cosigner). A better credit score is also going to often times give you a better interest rate. Check your credit today and see how yours measures up.
There are so Many Lenders to Choose From, so Shop Around
Shopping around with various lenders is not only recommended, but it is also a vital part of ensuring that you get the best deal on your new loan. The key is to do your research, and only actually apply with companies that you would want to do your business with at the end of the day. As you complete applications, more inquiries will show up on your credit. If the credit bureaus think that you are applying for multiple lines of credit, it may actually put a dent on your credit report.
Some Lenders Offer Payment Protection During Times of Hardship
No one thinks that it will happen to them, but sometimes illness, injury or other hardships may occur and make it difficult for you to pay your loans each month. The good news is that some lenders offer protection during these times. With federal student loan programs, there are a lot of protection offers. Through refinancing, you do give up a lot of these protections; but there are some lenders that will work with you if you get to a point in your life where you are temporarily unable to make your payments. This is something worth looking into, even if you think it would never happen to you. In life, we must expect the unexpected.
Interest Rates May be Fixed or Variable
As you look for a lender to refinance your student loans, you will notice that you can choose between fixed or variable rates. There are pros and cons to both types of rates. For instance, fixed rates won’t change, but they may be higher initially than the variable rates. Variable rates, however, may start out really low, but they are often able to go up based on prime rates. It is a risk that some people are willing to take, but we usually recommend a fixed rate in this ever changing economy.
While there are countless other things that you need to know before refinancing your student loans, this will definitely get you started in the right direction. Remember to do your research and find a lender that is going to best meet your financial needs.
Author: Jeff Gitlen
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