How To Refinance Your Private Student Loans
Refinancing your student loans is an excellent way to save money on your monthly interest payments. But if you’re unfamiliar with the process, it can be overwhelming. Typically, though, it’s as simple as comparing lenders, choosing the best offer, and applying. If your application is accepted, the new lender will repay your old lender. After that, you will start paying the new lender.
If you want to know how to refinance your student loans, these tips from NerdWallet will help you through the process. But first, you should understand a little bit about the approval process.
How Can You Get Approved For Student Loan Refinancing?
Generally, lenders will only refinance student loans for borrowers with a minimum credit score of 650, who have a job and consistent income, and a good debt-to-income ratio. That’s because they want to make sure you can afford your payments, debt, and other living costs.
If your credit score or finances are in bad shape, your chances of approval will fall. However, you can ask someone to co-sign on your application. The right co-signer will lower your perceived risk to the lender and possibly help you secure a more competitive rate.
How To Refinance Your Student Loans
Consider If Refinancing Is The Right Option
Everyone benefits from lower payments, but that doesn’t mean refinancing is the best decision for everyone. Remember, you need a positive credit score and to have your finances in order — among other requirements — before you apply.
NerdWallet advises against refinancing federal student loans. That’s because you will no longer qualify for federal assistance such as income-based repayment or student debt relief during the pandemic. If you are in danger of losing your job, you will want to have these options available.
If you have a private student loan, there are fewer drawbacks to refinancing since these loans aren’t eligible for federal support.
Compare Lenders And Features
On the surface, lenders that offer student loan refinancing might appear to provide the same things. However, you should assess a few features, like whether the lender requires that you finish your degree or if you can refinance in someone else’s name.
Compare Rate Estimates
When you have your list of lenders, request their rate estimates. You want to refinance with a lender that gives you the most affordable rate possible. After that, you can compare each lender’s rate.
While you comparison shop, you may encounter lenders that require prequalification screenings to give you a rate. In these instances, you just need to submit a few personal details. Others may ask for more information, including a complete application.
Prequalifications and soft credit inquiries won’t hurt your credit score, so don’t worry. But if you need to apply, the lender will perform a hard pull, which will hurt your credit score, but only temporarily.
Pick Your Lender And Loan Terms
After deciding on the best lender for your needs, you will need to consider a few things, like whether you want an interest rate that’s fixed or variable or the length of your repayment period.
Generally, fixed interest rates are the safest choice for borrowers. Variable rates might start off lower initially, but you may end up paying more. Your best option is to select a repayment period that’s as short as you can afford. On the other hand, if you need to keep your monthly payments down to afford additional costs, you may need a longer term.
Your next step is to submit an official application with the lender, even if they already prequalified you. When you apply, you will need to supply more detailed information about your student loans, job, income, and other factors such as:
- Loan verification statements
- W-2s, pay stubs, tax returns
- Proof of address
- Proof of graduation
- Government-issued ID
Lastly, you will need to give the lender permission to conduct a hard credit inquiry to determine your interest rate. If you have a co-signer, they could help you receive a better rate.
Sign The Final Documents
If the lender approves your application, you will need to complete a few more documents to confirm the loan. After that, a three-day rescission will take effect. This is the time for you to cancel the loan if you decide you no longer want to refinance.
If the lender rejects your application, they will inform you. If your credit score is too low, a co-signer could help reverse their decision. In some cases, you may need to work on your debt-to-income ratio.
Wait For The Loan Payoff
When the rescission period is over, the new lender will pay your previous loan provider, and you’ll begin making payments to the new lender. Don’t stop paying your old servicer until you receive verification that the process is finished. If you pay too much, the original lender will issue a refund.
- Friedman, Zack. “Should I Refinance Student Loans Now?” Forbes, Forbes Magazine, 1 Oct. 2020, www.forbes.com/sites/zackfriedman/2020/10/01/should-i-refinance-student-loans-now/?sh=4e9559e6331e.
- Nykiel, Teddy. “How to Refinance Student Loans in 7 Steps.” NerdWallet, 23 Oct. 2020, www.nerdwallet.com/article/loans/student-loans/how-to-refinance-student-loans.