If you’re thinking about refinancing your student loans, you probably have a few questions. Deciding whether to refinance requires some careful consideration and comparison among available options, but doing so can save you quite a bit of money over the term of your loan.
Step One: Compare Rates
Even if you haven’t decided to refinance your loans, you can browse rates and offers without impacting your credit score. You also don’t have to accept any of the offers if they don’t benefit your financial situation.
With a quick online search, you can find a long list of options for refinancing your loans. Simply enter your basic information and you’ll see customized rates for which you could qualify. By putting in your information, the lender will run a soft credit check, which doesn’t impact your credit history.
If you qualify based on the information you put in, you can see additional details about the offers. Most loan refinancing terms are between five and 20 years, depending on the total amount of outstanding debt. The information will also include variable and fixed interest rate options.
Step Two: Variable Versus Fixed Interest Rate
The next step is deciding whether you want to consider a refinancing term with a variable interest rate or a fixed interest rate. Variable interest rates change based on the current rates, while a fixed interest rate stays the same throughout the loan term.
When you opt for a variable rate, it’s often lower at the start of the loan but it could increase. Those who don’t want to take a risk usually choose fixed rates to avoid unpleasant surprises in the future.
Step Three: Make Sure Your Loans are Eligible
Certain loans, such as those through federal government programs, must go through approved refinancing providers. You might not have as many options for refinancing through private lenders if you have a specific type of student loan. Before you make a decision, contact your loan provider to find out what options you have for refinancing.
Step Four: Prepare the Necessary Documents
If your loans are eligible for refinancing through a private lender, you can start putting documents together and apply for the loan you want to pursue. Most lenders require proof of citizenship, proof of income, and a valid ID number, usually on your passport or driver’s license. You will also need to provide all legal documentation from your outstanding student loans.
The documents need to show the date of disbursement, original balance, and the full history of repayment you’ve made. When you apply with a co-signer, you will need the same documentation for that person.
Step Five: Reap the Benefits
When you refinance your student loan correctly, you could save thousands of dollars over the term. Many student loan applicants have little to no credit history and low income, which makes it hard to qualify for a competitive interest rate. After you graduate and get a job with a higher income that is stable, you have more power in terms of interest rates.
Refinancing is a great option for graduates who want to score lower interest rates and reduce the total amount of outstanding debt.