You’ve graduated from college and your student loan deferment term is on the verge of ending. Maybe you’ve yet to find a job that allows you to comfortably make the monthly payments you’re going to be required to remit once the bill comes due. This is where refinancing your student loan can really benefit you and your financial situation. Wouldn’t it be great to find a lender that has lower interest rates 95% of the time? Here are five keys to refinancing a student loan at a lower rate to help you make your monthly payments more manageable.
Assuming you’ve already decided to refinance your loan, the first step toward completing that process is to research lenders. On the surface, most student loan refinancing companies may look the same, but there are some important differences. For instance, some lenders won’t refinance your loan if you didn’t graduate. Others won’t allow you to refinance a PLUS loan that is in your parents’ name so that it’s now in your name.
Obtain Rate Estimates
Once you’ve found lenders that meet your specifications for refinancing your student loan, the next step is to obtain rate estimates from them. Ultimately, the one you’ll want to use is the lender that offers the lowest rate. There are many online tools that allow you to compare refinance rates side-by-side, but sometimes the best way to get the most current rates is to visit each company’s website separately.
As you inquire about rates, almost all lenders will ask you for some basic information to pre-qualify you for a loan. Others won’t give you a rate until you submit an application, but the rate they give you is an actual offer and not just an estimate. Soft credit checks for pre-qualification don’t impact your credit score, but a hard credit check for an application will. If you’re not comfortable filling out an application at this stage, the lenders that require one may not be the right companies for you.
Choose a Lender
When you get the rate estimates from your short list of lenders, you’ll be able to make a decision on which one to use fairly quickly. You want the lender with the lowest rates because over time, you’ll pay less for your loan. By the time you’ve paid off your loan, the difference in even one percentage point can mean thousands of dollars in savings.
Choose Loan Terms
Most lenders will give you the option of choosing a fixed-rate or variable-rate loan. Nearly all borrowers choose a fixed-rate term because their payments will stay the same no matter what happens to interest rates. A variable-rate loan is akin to gambling. You’re betting that the interest rate will stay the same or go lower, which will give you a lower payment as well. However, if the rate goes up, so does your payment.
Choose the shortest repayment term you can afford, as this will save you money over the course of the loan. Certainly, you want to make sure you can afford the monthly payment along with your other financial obligations, but balance that need with your overall interest payments to get the most out of your refinance plan.
Complete an Application
After setting your refinance loan terms, you’re ready to complete an application, if you haven’t already done so. You will need to provide the lender with your loan payoff statement, proof of employment, proof of residency, proof of graduation and a government-issued ID and agree to allow the lender to pull a hard credit check on your credit report.
That’s it except for the signing of the loan documents when you’re approved. If you aren’t approved, you may still be able to refinance your student loan with a co-signer or consolidation may also be an option. Ask your lender about your options so that you can better afford your monthly payments.