Student loans are one of those necessary things in life that impose a large financial cost in your first decade in the workforce. Private student loan consolidation is a way to obtain a loan refinance. While it may feel like you have limited options short of just gritting your teeth and paying off that loan, a refinance can give some comfort in reducing your monthly payments allowing you to get that loan paid off faster!
Student loan refinance is a strategic financial move that can help you lower your student debt in a low interest rate market environment. It can make your monthly payments more affordable due to lower interest rates.
There are many private loan providers and financial institutions now entering the space for student loan refinance.
You should compare their interest rates and terms and conditions before choosing a company to refinance your student loan. Here are a few effective ways of getting your student loans refinanced with reduced documentation and easier approvals.
Find Private Student Loans Lenders See How
So you may have heard that the Federal Government should be there to help you! Unfortunately, no! The federal government gives the option of loan consolidation and not refinance. Refinancing can be done only through private lenders.
You can refinance both private and federal student loans into one with a private lender of your choice. However, private lenders are known to have their own eligibility criteria in terms of credit score and repayment capabilities.
The terrific part is that you can reapply to the same lender or other lenders in the event of a denial. Your credit score will not take a hit as most private lenders perform only a soft credit check during the initial phase.
The good news is there are a large number of options of places where you can refinance your loan. Student loans are refinanced by many online lenders, credit unions, banks (such as chase, headquartered in New York) and other financial institutions. Check banks to refinance student loans and their rates. Most of these have an online platform where you can check your eligibility in a matter of minutes. Key benefits you need to look for are transparent practices, competitive interest rates, and excellent customer service.
Check with Multiple Lenders To Consolidate Private Student Loans
Dispassionate evaluation of different refinance offers (including a close look at their terms and conditions in fine print) is the single most important thing to do while selecting a lender. Private lenders will usually have different terms of repayment and other conditions.
Its important to shop around. You might be potentially losing out on savings if you simply go with the very first option that comes your way. You are under no obligation to choose a private lender even after credit checks are completed until you are satisfied that it benefits you in all aspects.
Always Compare Loan Terms
Do not base your decision merely on the lowest interest rate while shopping among multiple lenders. There are multiple variables such as repayment period and eligibility factors that must be taken into consideration.
You can use various student refinancing calculators to see how much you can save with a new interest rate while factoring in the other costs.
Private lenders add in their fee and charges to the principal sum during refinancing. This inflates your monthly premiums as you are essentially paying interest on added fee. You must compare loan repayment periods to find one that suits you.
A short repayment period will help you get out of debt faster and save you from interest charges in the long term. However, your monthly premiums come out to be more. You can free up more of your monthly income with a long term loan.
Fixed Interest Rate vs. Variable Interest Rate to Refinance my student loan
So you have heard of these different types of loans, but which should you go for? You will always have a choice between fixed interest rates and variable interest rates. Fixed interest rates stay the same irrespective of market fluctuations while variable interest rates change with market trends. Fixed interest rates tend to be higher than variable interest rates.
However, these can increase overnight with the market taking a downward turn. It is better to opt for a low variable rate only if you intend to repay your loan within a short period. Fixed interest rates are less risky in the long term.
Tips for a Faster Student Loan Refinance Approval
You should focus on the following key elements to improve your chances of a refinancing a student loan:
What income is eligible for a Refinance
Lenders want to see that you have sufficient income to pay for the loan as well as meet your monthly expenses. You need to have a stable recurring income to be approved for a refinance. Lenders may question your ability to repay the loan if you have low income or are unemployed.
Examine your pay stubs and deduct your monthly expenses including student loan. Your chances of approval are high if you have a considerable amount remaining. A qualified co-signer with a good credit history can help you if you do not meet the refinancing requirements.
Is a Bad Credit Score OK?
Credit score is a benchmark for private lenders to measure your financial capability. You need to demonstrate a history of financial responsibility to be approved for a loan.
You may be unable to refinance your student loan with a low credit score. However, a co-signer might come in helpful here. Most lenders require a credit score higher than 620 to even consider your loan application.
How about Work Experience
You should ideally have a certain amount of work experience, continuous employment or at least a written job offer in hand while applying to have your student loans refinanced.
It can be difficult for you to refinance your student loan if you are a fresh graduate or still studying. Even if you manage to get your student debt refinanced, you would be doing so at a higher cost.
Private lenders never take unnecessary risk. You might get options with a higher interest rate or a shorter repayment period. However, your field of study can help you get a loan refinanced.
For instance, lenders look favorably upon third year law school students with written job offers and medical residents. In fact, you can save more on refinancing if your student loans are from a health related degree such as Veterinary, Pharmacy, Medical and Dental School. These are all schools Harry Solomon from Third Rock From The Sun and Napoleon Dynamite never went to but this is another topic!
Looking at income rations when changing student loans
Debt to income ratio can be calculated quite simply – it’s the total amount of your debt divided by your annual income! If you’re like most Americans, it is possible that you have multiple student debts or other kinds of loans. Lenders want to make sure that your income is sufficient to take care of all your debt amounts. This is calculated as a percentage of all your existing debt over current income. A low ratio improves your chances of having your application approved.
It is recommended that you pay off existing debt, if you can, to lower your debt to income ration. You can use cost savings to manage your finances better and make extra debt payments. You can also raise your income with alternate income streams or ask for a bonus.
Deciding to Refinance
You can have your student loans refinanced in just a couple of weeks or less. All you need to do is check the eligibility conditions and shop around for the best refinance terms and conditions. Submit an application immediately when you find a good offer.
Until your student loan is refinanced, you must keep making your original monthly loan payments to prevent a default.