Refinancing private student loans can save you money and make loan payments faster. (iStock)
Managing student loan debt can be a financial juggling act, especially if you have private student loans with high interest rates. Refinancing your student debt could save you money on interest charges, help you lower your monthly payments, and potentially help you pay off your loans faster. If you are considering refinancing private student loans, here are some important things to know.
How to refinance your student loans
Refinancing student loans means getting a new loan to pay off existing loans. Then he would pay off the new loan in the future.
Refinancing private student loans is not a complicated process. It starts with finding a lender and then applies for a loan. Credible can help you compare multiple lenders at once to ensure you find the best rates and offers currently available.
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You can expect a verification of your credit history and credit score at some point.
If approved for student loan refinancing, you can choose between fixed interest rates and variable interest rates. Your lender will work with you to finalize the terms of your loan. The last step is to pay off your old loans and start paying off new ones.
How to Get Approved for Student Loan Refinancing
Getting approved for student loan refinancing means knowing what lenders are looking for. These tips and strategies can help you improve your chances of getting approved at the best rates.
1. Start by checking your credit
Private student loan lenders can offer initial rate quotes without credit check. But once you complete a complete application for student loan refinancing, your credit score can come into play.
Checking your credit report and credit scores before submitting an application can help you assess the likelihood of being approved for refinancing. It can also give you an idea of what type of interest rates may be eligible based on your credit history.
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2. Consider a co-debtor
If your credit score is low, you may want to think about having a co-signer who can file an application with you. Lenders can be more flexible by offering lower rates if your co-signer has a strong credit history.
When deciding who to ask to sign jointly, remember to be honest about what that entails. Co-signers are treated as equally responsible for student loan debt. If you do not make the loans later, your credit could be affected and could be subject to collection actions.
3. Check your debt-to-income ratio
In addition to your credit score, private student loan lenders can also view your income and debts. Specifically, they can focus on your debt / income ratio, or how much of your monthly income goes toward paying off debt.
That includes all of your debts, not just student loan debt. So if you have credit card balances or a car loan, they can also be considered.
An easy way to increase your chances of being approved for student loan refinancing is to improve your debt-to-income ratio. You can do this by paying off part of your debt and / or increasing your income with a part-time or secondary job. The less debt you have and the more income you have to pay what you owe, the less risky it may seem in the eyes of lenders.
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4. Make sure you meet other lender requirements
While credit scores, income, and debt levels are important when trying to refinance private student loans, you may need to meet other requirements.
Some lenders, for example, require you to have a minimum amount of loans to refinance. Or they can limit the maximum amount you can borrow to refinance private student loans. You can get an overview of different lender requirements (and find out what rates you qualify for today) using Credible’s free online tools.
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More importantly, you may not be able to get approved for student loan refinancing if you are currently in default on any of your private loans. In that scenario, you will first need to upgrade your loans before trying to refinance.
5. Compare Student Loan Refinancing Options
If you have reviewed your credit and finances and your current loans are in order, the next step is to find a lender to refinance your loans. This is where you will want to take your time and research the options carefully.
For example, are you looking for refinancing with fixed interest rates or variable interest rates? Would you like to take advantage of discounts, such as lowering the interest rate for automatic payments? Do you need a lender that doesn’t charge you fees or offer flexible payment options?
Perhaps most importantly, you should take a close look at the interest rates offered by different lenders. If that part of the research on student loan refinancing seems overwhelming, Credible can help. You can get rate quotes from multiple lenders in one place, without affecting your credit.
Credible also offers a free student loan refinance calculator to help you estimate your refinance savings.
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Stay on top of your loans after refinancing
Once you have refinanced your private student loans, it is important to make sure you have a solid plan to pay them off. Keeping in touch with your lenders or loan servicers is important, especially if you run into financial difficulties at some point. Your lender may offer you temporary student loan relief in the form of deferment or leniency options if you are unable to pay. And you may also want to keep an eye on rates as you pay off your loans in case another fall in rates makes refinancing a second time an attractive option.
