If you have student loan debt, you may be struggling with the idea of when to refinance the loans. This can be a tough decision, especially for those individuals who do not know when to make the move.
Refinancing your student loans can lower your monthly payments, restructure your repayment plan, and even reduce your interest rate. If an applicant is creditworthy enough, those who refinance their student loan debt should pay less money over the course of a successful repayment period.
Below, we will take a look at when it is the right time to refinance your student loan debt.
Student Loan Refinancing with Private Lenders
When you refinance your student loan, you will do so through a private lender. It is important to know the eligibility requirements prior to applying for refinancing. If you don’t have good enough credit, then you may be denied.
If you’re approved, the process is pretty simple. The private lender would provide a loan to pay off your current student loans. Afterwards, you’re on the hook for repaying the loan offered by that private lender. During the process, you should have had the opportunity to choose your desired repayment timeline, and you’ll receive other new loan terms like a new APR.
Scenarios When It Is Right to Refinance
There are some scenarios that make refinancing a great possibility, and other scenarios bar it completely. For example, if your right out of college and just starting repayment at a new job, then you may get denied. You want to make sure that the situation does make financial sense before you jump into it. But, what situations would make sense? Let’s take a look.
One scenario where it would be ideal to refinance your student loan debt would be when you are unable to handle your current monthly payments and need to simplify them. We are not talking necessarily about financial struggles here (if that were the case, then you may not be able to refinance at all). We are referring to when you have multiple student loan payments to make each month, making everything confusing. In this scenario, refinancing would take your current loans and reduce them down to a single loan, meaning just one payment.
The next scenario where refinancing should be considered is when market interest rates are lower than your current rate. For example, consider a situation where your current student loan interest rate is 6.8 percent. The market has an interest rate of just 3 percent. In this instance, you would want to apply to refinance to receive that lower rate.
The last scenario where refinancing would be a good choice is when your credit score has improved, and you would qualify for a better, lower APR. The better your credit is, the lower of a score you are likely to qualify for. In this situation, you should apply to refinance since you can save yourself a lot of money with a lower rate.
What’s the Caveat?
Of course, refinancing student debt sounds ideal, but there is a caveat to the whole process. First and foremost, you must meet the eligibility requirements to be approved to refinance, which will eliminate a large number of individuals.
Private lenders require you to have good credit to refinance student loans, so you should avoid applying unless you know that your credit score is high enough to qualify.
Another caveat and eligibility requirement require to have a high enough income to support payments. In addition to that, you will need to show a steady job history. A lender doesn’t want to loan to someone who either doesn’t make enough money or can’t hold a job.
Know Your Stuff
There is always a good and bad time to refinance your student loans, and it is important to understand which different scenarios make it ideal to refinance. Student loan refinancing can help reduce your monthly payments, provide you with a better interest rate, and allow you to restructure your repayment terms. But, it can’t do anything for you if you can’t pass the application!