Deciding to refinance your student loan can be a smart move. Refinancing allows you to enjoy a lower interest rate and a reduced monthly payment. However, as with the majority of monetary decisions, refinancing your student loans must be thought out carefully to make sure it is the right option for you. The following questions must be asked when trying to make the right decision.
What’s my Reason for Refinancing?
First, it is imperative to decide the outcome you are looking to achieve when you refinance your loan. Refinancing this loan can be due to some reasons such as getting a lower interest rate, getting rid of debt faster and reducing monthly payments. You need to be clear on what your reason is. This reason will dictate your refinancing decisions and help pick the most suitable loan.
How Much Interest Rate can I Enjoy?
To make sure that you will really get lower student loan consolidation rates when you refinance your student loan, determine first what your current rate is. Federal student loan interest rates can range from only under 4 percent to more than 7 percent. This depends on the kind of loan you get. Expect private student loan rates to average around 9 percent to 12 percent.
How Much will my Total Debt Be after Refinancing
Determine how much payoff amount you will have to settle. Expect this amount to be higher than your current balance since it should include the interest you still owe. If your student loan balance is still high, pick a longer repayment period to easily manage your monthly payments.
How Much Monthly Payment I can Afford
The affordability of your new student loan will depend on your income. The more earning you have every month, the more monthly payment you can afford to pay. You can afford to pay monthly payments if you have 10% of your discretionary income free. To determine, check your budget and add up your bare-minimum living costs every month. The amount of money left serves as your discretionary income. Sure, your ability to pay back your student loan also depends on your unique situation.
The payments that you have already been making can provide you an idea of what you can afford. If you have been struggling to repay your loan, think about refinancing under terms which will lower the payments and work with your specific budget.
Do I have a Good Credit Score?
As you undergo the refinancing process, you have to know your credit score and what his means to loan providers. Knowing your credit score allows you to see the type of interest rate and terms you are likely to qualify for. A good credit score will qualify you for a refinance and provide you favorable terms.
Does My Lender Provide Flexible Repayment Options?
As you refinance your student loan, you can expect access to federal repayment plans. But, your lender is still likely to give flexible payment options. Know if you have policies which permit you to adjust your payments in case of tough refinance situations. Also, ask about the lender’s policies and willingness to accommodate borrowers with repayment issues. A lot of loan providers may agree to honor grace periods, thus when you refinance right following your graduation, you can still enjoy those first 6 months without having to make payments.