Refinancing private high interest student loans could save you money. Find out what high-interest private loan refinancing means so you can see if this option is right for you. (iStock)
For many students, getting loans to pay for school is essential. But student loans can be a significant financial burden if you borrow at too high a rate. When your annual percentage rate (APR) is high, you will pay more for the privilege of borrowing, less of your payments will go towards reducing principal, and ultimately paying off your debt will be more expensive.
The good news is that if you have taken out private student loans, you will not stay with them until you finish paying off your debt. You may be able to refinance high-interest student loans to save considerable money and facilitate the recovery process.
The Online Credible Marketplace can help you compare student loan refinance companies to make sure you find the cheapest rates available.
Refinancing simply involves getting a new loan to pay off the old one. There are many private student loan refinance companies that will work with you to provide the necessary funds to do so, but you will want to shop around to find the best one for your situation and thus maximize your savings.
What is a high interest rate for student loans?
Federal student loans have low fixed interest rates that are the same for all borrowers who apply for loans during a given academic year, but that is not the case with private student loans. Your rate will vary depending on the lender you select, whether you have a fixed or variable rate student loan, the term of your loan, and your credit score.
Because there may be wide variation in rates, it can be difficult to know if the rate on your loans is too high or not. You may have a higher rate than someone else in your class, but it may still be a good rate for you because your credit score is lower or because you chose a fixed-rate loan instead of a variable one (home loans). Fixed rate often come with higher start rates but there is no risk of them going up.) See what kind of rates you qualify for today.
WHY YOU SHOULD REFINANCE STUDENT LOANS NOW, ACCORDING TO A FINANCIAL EXPERT
Still, looking at current student loan rates can give you an idea of whether or not your rate is reasonable. For example, lenders at Credible.com offer fixed-rate student loans ranging from 3.62 percent to 14.50 percent APR and variable-rate options from 1.24 percent to 13.19 percent. If your interest rate is at the upper end of this range, or higher, you will most likely have private high interest student loans.
When should I refinance my student loans?
Refinancing student loans makes sense if you can qualify for a loan with a lower rate than you are currently paying on your private student debt. Most lenders do not charge a fee for refinancing, and you do not give up any benefit to the borrower when you refinance a private loan with another private lender, so there is little reason not to refinance if doing so can save you money.
Credible’s online student loan refinance calculator can help you see how much you will save by refinancing. With the calculator, you can see what your new monthly payments would be and the interest cost. If you can cancel your payment and reduce the total amount of interest you’ll pay over time, going ahead with getting a new loan makes perfect sense.
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However, if you have federal student loans, you should generally avoid refinancing unless you are sure that you will not take advantage of any of the exclusive borrower protections on federal loans, such as public service loan forgiveness, flexibility in payment options and income. payment plans or generous leniency and deferment options.
How do I refinance my student loans?
Refinancing your student loans involves finding a new lender to offer a loan at a lower rate, then applying for and obtaining loan approval. Your new lender will either pay your existing loans directly or provide money to do so. Then you will have to pay a new loan.
However, the key to a successful refinance is to shop around to find the most affordable new loan possible. It is a good idea to compare the rates of several different lenders to see who can offer you the best deal. Credible makes it easy by offering a rate chart that shows you the rates of multiple lenders at once without affecting your credit score. Visit Credible today to see if you can qualify for an affordable student loan refinance loan so you can get out of debt faster and easier.
HOW TO CHOOSE THE BEST STUDENT LOAN REFINANCING OFFER
When should I not refinance my student loans?
Although refinancing makes sense if you can save money, you don’t want to refinance your private student loans if it ends up costing you money. If you can’t qualify for a lower interest rate, for example, you probably want to stick with your current lender.
If you’re too close to paying off your student debt, refinancing probably doesn’t make sense either, especially if your new loan has a longer repayment term. If you extend the time to pay what you owe, you could end up paying more in total interest costs, even if you lower your APR.
Refinancing with a new lender that charges a high home fee or prepayment penalties can also be a bad move, especially if you are not saving substantially on interest or plan to pay off your debt ahead of schedule.
HOW TO CHOOSE THE BEST STUDENT LOAN REFINANCING OFFER
