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If you are dealing with a student loan repayment, you may be considering refinancing. There are many reasons to do this, the most important of which is to lower your interest rates. Let’s take a look at how to get the best interest rate when refinancing for student loans.
What does refinancing student loans mean?
If you have student loans (or most types of loans, for that matter), you’ve probably heard of the term “refinance”. While it might seem like a huge and scary thing, when you get down to the details it’s not that intimidating.
One of the reasons refinancing is actually much better than many think is because it can actually save you a substantial amount of money. When you can potentially reduce the amount you’re obligated to repay on a loan – and sometimes by a substantial amount – it makes sense to dig deeper.
Refinancing is basically taking out a new loan to replace an existing loan. While this might sound sketchy or sound like some sort of risky move, it isn’t at all. People refinance their loans all the time. In fact, it is generally considered a very prudent financial decision when you are able to get a much better loan.
There are generally two main things borrowers will look at when considering refinancing student loans: interest rates and repayment terms. Some will also want to refinance to add or remove a co-signer from their loan.
The interest rate on a loan is exactly what the name suggests – the ongoing costs that you pay to be able to borrow money, based on the percentage of the outstanding principal on the loan. For federal student loansthese rates currently range from 3.73% for direct subsidized and direct unsubsidized undergraduate loans, up to 6.28% for direct PLUS loans.
For the most part, private loans will not be able to beat direct loans for undergraduates in terms of interest rates, although some may offer attractive refinancing opportunities. Refinancing for a better rate will make more sense if you have private student loans or Federal PLUS loans. Another thing you should know about a student loan refinancing the interest issue is that while federal loans all have fixed rates, some private loans offer variable interest rates. While fixed rates won’t change after you refinance your student loans, a variable rate will go up or down based on market conditions. Make sure you understand how this could affect you in the long run before refinancing for student loans.
All other things being equal, a lower interest rate is always better. This is because higher interest means that you will end up paying off more of the extra money over the course of the loan. Reducing interest as much as possible can be extremely beneficial to your finances.
Other reasons to refinance student loans
The other reasons people typically want to refinance – to change the repayment term or add or subtract a co-signer – are also things you need to think about first. The main reason you may want to change the term of a loan is to make your monthly payment more reasonable by extending the term, or to pay off the loan sooner by shortening it. You will want to fully understand how this might affect your personal finances before you decide on anything. Plus, getting a co-signer can help get a loan if you don’t have enough credit or enough income. At the same time, you may want to release a co-signer on your loan while refinancing if you no longer need their help.
It was a lot of information to ingest. While there are many features and considerations that are essential to refinancing (we’re not even going to talk about some of the benefits of federal loans, such as income-based repayment, you might not want to give up on refinancing) , interest rates always rise to the top of the heap.
How to Get the Best Interest Rate When Refinancing for Student Loans
Getting a good interest rate is one of the most essential things to consider when refinancing student loans. Truly, what is refinancing what if you don’t get a better interest rate?
Unless you really need to change your loan terms or update your co-signer status, there isn’t much motivation to refinance with the prospect of lower rates. This is why consumers should know how to get the best interest rate when refinancing student loans.
While it’s possible to possibly get the best rate by doing your own research, it can be an incredibly long and tiring process. Many will give up before they find the lender who will offer them the best interest rates for student loan refinancing. One option to overcome this, however, is to work with a company like Juno.
Instead of being a lender himself, Juno takes offers from a wide assortment of lenders, selects the best, and only offers them to members of their group. Lenders pay Juno a flat rate regardless of what they offer consumers, removing any potential bias from the decision-making process. It is worthwhile for the lender as it allows them to access a large group of borrowers at once. In this scenario, you can really guarantee that you will get the lowest interest rate because Juno will match it if you can find a better one.
It is important to note that you will need to have a decent credit score to be eligible for student loan refinancing. For Juno in particular, they want borrowers to have a credit score of 650 or higher, although some lenders have more or less flexible expectations than that. If you do not meet the income or credit conditions to refinance your student loans, it is still possible to use a co-signer. Just know that they will be obligated to pay if you are unable to meet your obligations.
Especially if you have private student loans, or a loan with a high interest rate, there are a lot of refinancing advantages. However, taking the time to make sure you’re getting the best rate will take these benefits to the next level.