Two factors go into determining your monthly payments – your interest rate and the loan term. These are set when you take the loan and they remain unchanged until the debt is cleared off completely. However, if your financial circumstances change and you want to change the terms of your loan, you can do this with a loan refinance.
Loan refinancing involves exchanging your current loan for a new loan with different terms. When you apply for refinancing, the lender will set the rate of the new loan based on your credit score. But you will be able to choose how much you want to pay back every month.
These are two signs you should increase your monthly payments.
If your income has increased since you took the original loan, you may be able to pay more towards your repayments. When you increase your monthly payments, the outstanding loan amount is spread over a shorter period, which reduces the loan term. This offers you two major benefits.
Firstly, with the shorter loan term, you’ll pay off your loan earlier. Secondly, less interest accrues over the shorter loan term so you save much more in terms of interest. It’s a win-win situation for you.
If you have a flexible budget, it’s definitely worth refinancing and increasing your monthly payments.
Your credit score has a considerable impact on the financial opportunities available to you. A high score makes it easier for you to get approved for credit cards, mortgages, or vehicle loans. With a high score, you’ll also qualify for a lower interest rate on all your credit lines.
Payment history has the single biggest impact on your credit score. Making all payments on time every time will add points to your credit score steadily. But this can take time. If you’re planning on buying your own home, you’ll want to boost your credit score quickly to qualify for lower mortgage rates. Increasing your monthly payments can help you do that.
Paying back more than the minimum due consistently is can add additional points to your credit score. This will help you score a lower interest rate when you apply for a home mortgage. In addition, you’ll also save on the lower loan term, adding to the savings.
This one piggybacks off of #1. The more you pay per month, the sooner you pay off the loan. Plus, you’ll pay less overall by way of accrued interest. While this option sounds like a dream, it’s one you have to plan for. If you have the budget for it, then go right ahead! Just make sure all of your other necessary payments–like rent or groceries–are filled too.
That said, fully repaying your student loans is a total relief–both emotionally and financially. It can pave the way for you to focus on other loan payments or major life purchases.
It’s tempting to maximize your monthly payments to reap considerable benefits. However, you must consider your income and expenses carefully before choosing this option. You must keep some wiggle room in your finances to take care of any unexpected finances.
To start with, only increase it by as much as you’re comfortable with. As your finances improve you can always refinance again to increase your monthly payments some more. By then your credit score will have improved too and you’ll also get the benefit of lower interest rates.
Refinancing allows you to change the original terms of your loan. This means you can increase monthly payments and decrease the overall length of the loan if you so choose. You should know that you can refinance multiple times. Most lenders don’t charge any refinancing fees.
We hoped you enjoyed this article! Remember, you canand potentially lower your monthly student loan payments and save money.