- Settle on a lender and their terms
Once you get a lender, there are a few decisions to make, consider whether you want a variable or fixed interest, and the perfect repayment period for you. For the majority of borrowers, fixed rates are the best option. Variable rates are low at first, but they change over time.
To save more money, go for the shortest reasonable repayment period. If you want the lowest monthly payments that leave you some money for personal use, an extended repayment period will do.
- Finish the application process
Even with a pre-qualification, you still have to make a complete application to your lender. You will answer some questions about your financial situation, confirmed by the supporting documents you submitted. You finally have to allow the lender to check your credit to know what interest rate is better.
You can also use a co-signer to refinance student loans, earning you a lower rate.
- Sign the final documents
If you get approval, you will be presented with some final paperwork to sign accepting the loan. During the three-day rescission, you will get to sign a disclosure document for your loan. At that time, you can withdraw from the refinance if you have a change of mind. If you are denied a loan, your lender will give reasons for the decision.
- Wait for your loan payoff
After your rescission period elapses, your new lender will repay your existing loans to the respective servicer. Your monthly payments will be made to the new lender. Maintain your payments to your lender till the day they confirm the payment is complete.
Disadvantages of Refinancing Student Loans
- You will be starting a new repayment process
When you refinance student loans, you will be starting the whole repayment process. Depending on the situation and the costs you would incur, extending payments to a further date would mean you have a more extended period to pay your loan.
- You cannot combine your student loan with other debts
Refinancing does not work for everything. When refinancing student loans, you might think that it is better to bring in different types of debts into your new loan. Even though it would simplify things, you cannot combine your student loans with other obligations.
- The application and processing fees could increase
The different prices would be higher. If you are looking around for a loan with a lower interest rate, consider asking about the application and processing fees alike. If you are not watchful about the more minor details, the costs could go up and become costly.
- Only a strong credit score qualifies
Your credit score is the most significant determinant of whether you get to refinance student loans or not. If you want a new loan with favorable interest rates, your credit score needs to be strong. The lender also considers your income level, which will be used to determine if you can meet your loan obligation.
You will get a reasonable interest rate if you earn a lot of money and a higher credit score.
Conclusion
Refinancing is an excellent way to save some money while you pay student loans. But despite being such a lifesaver, a few details make the refinancing process tedious, but it is worth it in the long run. The only downside is that refinancing student loans does not work for federal loans.
In this matter, a borrower might consider a loan consolidation or a repayment plan based on the income.
Private student loans have the upper hand in getting refinancing since very little is at risk. This is because they cannot get any government-sponsored benefits or transfer them to a federal program. Therefore, this guide will help you down the road as you look for a better option.
