If you’re one of the many Americans who are still paying off their student loans, you may want to consider refinancing your loans. Student loan refinancing can lower your monthly payments and free up money that you can use to consolidate other debts, like credit card debt or personal loans. Unfortunately, the process isn’t quite as simple as refinancing your mortgage, but it doesn’t have to be overwhelming. You need to follow these five steps when refinancing your student loan.
Check Your Credit
Before attempting student loan refinance, it’s vital to ensure you have a good credit score. This will help you get a lower interest rate and keep your monthly payments affordable. A credit score of at least 700 is ideal for most lenders. If yours isn’t that high, consider taking steps to improve it before refinancing.
Shop for the Best Rate
Shop around. Many lenders offer student loan refinancing, but not all do it at competitive rates. So before you refinance, compare offers from multiple lenders to ensure you’re getting a good deal. It may take some time, but it could save you money in the long run.
Choose a Loan Offer
You’ll need to decide which type of loan you want. There are many different student loans available, including federal and private loans. Private loans have higher interest rates than federal ones but offer more flexibility in repayment options. Federal loans come with a variety of repayment plans that can be helpful if you don’t think you can afford your monthly payments. It would help if you also considered whether or not it makes sense for you to consolidate your loans.
Fill Out an Official Loan Application
To refinance your student loan, you need to fill out an official application. If you have questions about where and how to start, check with your current lender or a financial advisor. Once you’ve done that, consider these four steps:
- Decide what type of loan you want: The first step is deciding whether you want a fixed or variable rate loan and if you’re eligible for either one.
- Determine how much you can borrow: This depends on your credit score, whether you have a cosigner and any loan forgiveness programs available in your state or industry.
- Decide how long you want your loan term to be: If you want a lower monthly payment, you’ll need a longer loan term, but if you can handle higher payments, a shorter loan term might be better for your budget. According to experts at Lantern Credit by SoFi, “The actual terms you may receive depend on benefits requested, your credit score, usage, history, and other factors.”
- Compare APRs and costs: Get quotes from more than one lender to ensure you’re getting a good deal on your loan.
Before refinancing, consider your long-term financial goals. If you’re not sure what you want to do with your career or whether you plan on moving in a few years, refinancing could be risky. For example, you may get stuck with higher monthly payments than expected. However, refinancing could make sense if you know exactly where you’ll live and work for at least five years.
Finalize Your Loan Documents
Once you’ve completed all your paperwork, send a final copy of your signed documents and start paying your new loan.