Are your student loans still haunting you? You might have already completed your education, begun your career, and possibly settled down. However, this part of your past continues to plague you. The good news is, there is a way to ease your stress in paying off your student loans: refinancing.
Refinancing student loans involves assigning your existing loans to a new lender in return for a new loan that you plan to repay. The good thing about refinancing is that you can have new terms that are more favorable to you, such as a lower monthly interest or a better payment plan.
Now you might be wondering: "What should I do to refinance student loans?" Keep on reading to learn the steps in the student loan refinancing process.
1. Think about whether refinancing student loans is right for you.
Refinancing may seem like a great idea because it can help you save money. However, it's also not for everybody. You first need to have good credit and finances to be eligible for the lender's qualifying criteria and access the lowest interest rates.
Because of the current public health crisis, refinancing federal student loans would disqualify them for state programs such as student loan relief and income-driven repayment. Therefore, it's best to refinance federal student loans only if your job is secure, and you don't need these options.
Refinancing private student loans, on the other hand, has only a few drawbacks. For one, private loans are not eligible for the government programs mentioned.
2. Examine potential lenders.
Many student loan refinance lenders seem to be very similar at first glance. However, depending on your circumstance, you can look for specific features. Some student loan lenders may be a better fit for certain situations than others. You'll want to do your homework and compare lenders because not all of them give the same terms. The factors you need to consider include:
- Interest rate: Although your credit score determines the majority of your interest rate, different lenders can give you different rates. In most cases, it's recommended to go with the lender who provides the best rate, conditions, and monthly payment for your circumstances.
- Repayment conditions: Consider what sort of new refinancing conditions will be most beneficial to you. You should also take a shorter term if you'd like to pay off your student loans quickly. However, if you prefer to have more allowance on your budget and a lower monthly payment, a loan with longer terms may be a good option. Just remember that you might end up paying more interest over time if you choose a longer repayment term.
- Monthly payment: Take a look at the average monthly payments you would be able to make. If this figure doesn't work for you, you may want to consider changing your conditions or interest rate.
- Fees: You should seek out lenders who charge low or no fees. However, take note of late payment fees, origination fees, and prepayment penalties, resulting in you paying more in the grand scheme of things.
- Requirements: Lenders have varying criteria, so keep an eye out for the one that best fits your situation. For instance, if you have bad credit, you might need to have a co-signer — some lenders don't accept co-signers, while others do.
3. Compare rates and terms and select the offer that you think is best.
Once you've found several lenders that meet your standards, request rate estimates from each of them. You may compare rates from many student loan refinance lenders at once, or you can go to each lender's website separately.
You can evaluate lenders by looking at their interest rates, charges, monthly payments, and total loan amount. The best choice would typically be the refinance lender that offers the lowest interest rates, minimal fees, and a flexible repayment plan.
4. Finish your application.
Once you've decided on a lender that would be the best fit, you'll need to give them the details about your loan. The lender will require more information about your loans and financial status, and you will be requested to upload supporting documents. Some of the requirements may include loan or payoff verification statements, proof of employment, proof of graduation, and government-issued ID.
Lastly, you must consent to a hard credit pull by the lender to verify your interest rate.
After that, the lender will decide whether or not to accept your loan and at what interest rate. If you agree with the conditions in the loan papers, go ahead and affix your signature. Then, from the time you receive lender approval, it typically takes about two working days to fund your loan, but the times may differ by lender and situation.
Student loans are still a huge headache for many people. However, this can be remedied with refinancing. By following the steps in this article, you can have a better chance of repaying your student loans at more favorable rates and terms.