So many of us are wondering what to do with our student loan debt, no doubt you’ve come across the option of refinancing. But is it for you?
Here are the 7 signs you’re ready to refinance your student loans:
1. You Understand the Benefits of Refinancing
Do you know why you’re actually refinancing, apart from the fact that your friend’s cousin did it? Let’s break it down.
A refinance scoops all your smaller payments into one payment, and rewrites the loans you had into one new loan. That means you have room to negotiate and shop around. Lenders will base your loan on your current credit score, so that’s a bonus of lower interest if you’ve been good with your credit.
The kind of interest you pay, whether fixed rate or variable, may also change as well.
You can adjust your payments to fit your lifestyle, whether you want to pay more now to get them over with, or create a lower monthly payment so you can get by until you earn more.
2. You Have a Solid Credit Score (650+)
It might be a waste of time to ask for a student loan refinance if your credit score is under 650.
Lenders want to see that there’s a low risk you’ll be unable to pay and will default on your loans. Check the website of any company you’re considering using to see if they mention a minimum credit score.
On top of that, having a healthy credit score will also get you the lowest interest rates, so it’s a win for everyone.
Here’s a good guide to show you what is considered an excellent credit score.
3. You Can Show A Steady Income
Lenders like to see a history of steady income so they can see that you have a reliable source of dollars coming in. They want to make sure that you’ll be able to make the monthly payments on time on a regular basis. A steady source of income gives them comfort.
If you just got a new job after a gap in employment, you may want to wait at least a year before refinancing. If you can’t wait to refinance, be ready to explain any gaps or extenuating circumstances.
4. Your Debts Don’t Outweigh Your Income
It’s important for many reasons to keep your debts lower than your income.
When it comes to student loan refinance, companies will use their own formula to determine whether they want to take your loan on. They keep this “secret sauce” formula secret, but one thing they’ll definitely take into account is the balance of your debt vs. income.
If your monthly income is $1,500 but your monthly student loan and mortgage payments add up to over $1,500, lenders will be less excited to lend to you, because it increases the likelihood you’ll be unable to pay them back if your income drops.
If you aren’t sure how to lower your debt, consider making a simple budget to help you finally take control of your money.
5. Understand The Fees Involved
The whole point of refinancing is to save money, so understand all the fees that might be working against that goal.
Be sure to ask about any prepayment penalties, origination fees, or application fees.
But don’t let this scare you, because it’s possible you’ll still end up way ahead by lowering your interest rate substantially.
6. You’re Not looking For An Income-Driven Repayment Plan
If you’re interested in an Income-Driven Repayment Plan, please know that some private lenders do not offer this as an option with student loan refinance. That’s a different program.
If you are pursuing Public Service Loan Forgiveness (PSLF) or considering it, then you should not refinance either. Private loans do not qualify for PSLF.
7. You’re Willing to Put in Work To Find The Right Lender for You
Shopping for a student loan refinance is the same as shopping for any important product. It’s going to take a little bit of work to get the best deal.
If your decision affects a co-signer, you owe it to yourself and to that person to understand the responsibilities and details of any refinance deal. You’ll also want to compare a few offers so that you get the best deal possible.
Thankfully, we’ve put together a pretty awesome group of lenders below who would love to give you a free quote so that you can find the best deal.
|Visit Laurel Road|
Note: rates updated Feb. 2019; table includes affiliate links to leading student loan refinance companies.