You’ve just graduated from college, and now you’re faced with a mountain of student loan debt. You’ve probably heard that you can refinance your student loans, but how does that work? This post explains how refinancing works and walks you through getting started.
Check your credit score
Your credit score is the representation of your ability to pay back the money. It’s determined by how well you’ve paid off past debts and whether or not you have outstanding bills. The closer to zero your score is, the better—but even if it’s above 600, there’s still room for improvement!
An important thing to note when researching refinancing options is that many student loan providers use credit scores to determine the interest rate they offer borrowers. A good score can help knock down your monthly payments and save you thousands.
Have proof of income
Proof of income will help convince the lender that you can repay your student loans. If your job is unstable or if you’re starting out, lenders may want to see that you have a stable source of income and/or financial assets. So it’s crucial to show more than one source of income.
Consider a co-signer
A co-signer can be a great asset if you’re trying to refinance student loans. If you have a good relationship with your parents or another family member, that person may agree to co-sign on your loan so that you can get a lower interest rate and payment terms from the lender. But there are also risks involved when using a co-signer, so make sure you understand those before making this decision.
Find out what your loans are worth
Before you jump into refinancing, check to see if you have any private loans. If so, these must be consolidated with your federal student loans before refinancing. That way, all of your payments will go through one source—which makes managing them much easier.
You’ll also want to ensure that your student loan’s value is high enough to make refinancing worth it. Once you’ve found out how much interest rate reduction and savings you can get by refinancing into a new loan program, compare that with what they’re currently paying on their current plan.
- Shop around: One of the main ways to get a good deal on student loans is by shopping around, so it’s important to look at multiple lenders, terms and amounts.
- Look at different interest rates: Interest rates can vary quite a bit from one lender to another, so ensure you’re getting the best rate possible before committing yourself to an agreement with one lender. Lantern by SoFi says, “Many factors affect your credit scores and the interest rates you may get.”
Be aware of the additional costs
When you refinance your student loans, you might get a lower interest rate and monthly payment. But keep in mind that there are other costs associated with refinancing. These include application fees and origination charges. If these costs add up to more than $100, consider refinancing through another lender who doesn’t charge these hidden fees.
Refinancing is a powerful tool to help you save money on student loans. But like any financial decision, it’s important to understand all your options and keep an eye out for red flags before deciding whether or not you should refinance your student loans.