Back

Can I Refinance Student Loans Multiple Times?

by Refi.me Staff on March 8 2021

The short answer is yes, you can refinance student loans multiple times. The big question though is, should you?

Refinancing is one of the best ways to get a lower interest rate on your student loans. You can potentially save money every time you refinance your student loan provided that you qualify for a lower interest rate. Besides, you don’t pay any origination fees so you don’t lose money on additional charges.

You can either refinance with the same lender or choose a different one. Your choice of lender will primarily depend on the lender’s terms and conditions, and the interest rate they’re offering.

The Two Most Common Reasons for Refinancing Student Loans Multiple Times

  1. To score a lower interest rate

The most compelling reason for refinancing student loans is to get a lower rate of interest on the outstanding loan amount. Even a marginal drop in interest rates can mean significant savings over the life of the loan. Lenders calculate your interest rate based on your financial circumstances. A high credit score coupled with a low debt-to-income ratio will get you the lowest interest rate on your refinanced loan.

Refinancing again when your finances improve and you qualify for even lower rates, will help you save even more. In addition to saving you money, this can help you pay off your student debt faster if you make strategic decisions.

  1. To free up cash flow by lowering monthly payments

The second compelling reason for refinancing student loans is to lower monthly payments in order to free up cash flow. This can be a life-saver if you’re financially strained and struggling to make your monthly payments. The only way to lower monthly payments is by refinancing with a longer term. Extending the loan term spreads the payments over a longer period, which will lower your monthly payments. This will free up cash every month for other expenses. It also lowers the risk of defaulting on your loans.

The downside of choosing this option is that you will end up paying more by way of interest over the extended period. Another downside is that it will take you longer to get out of your student loan debt.

The Downsides Of Refinancing Student Loans Multiple Times

Refinancing your student loans too often can hurt your credit if you’re not careful. When you apply for refinancing, the lender will first do a credit pull to check your score. They will then quote you a rate based on your score. Every hard credit pull will cost you a few credit points. One inquiry may not cause any significant damage to your score. However, multiple hard pulls on your credit report will pull your score down considerably.

It’s a mistake to refinance student loans multiple times just because you can. The damage it will do to your credit card will have other consequences. It will make it more difficult to open another line of credit or get a mortgage or vehicle loan.

Another downside is the amount of time it takes to research rates and compare lenders.

When Refinancing Multiple Times Makes Sense

The right time to refinance multiple times is any time you qualify for a lower interest rate. This could be after taking up a higher-paying job or after a pay hike in your old job. Earning a higher income will make it easier to afford higher monthly payments so you can wipe off your debt earlier. You also save by way of lesser accrued interest. A higher income also helps improve your debt-to-income ratio, qualifying you for even lower interest rates. The lower the rate, the more you save.

A progressive improvement in your credit score is also good reason to refinance multiple times. The better your score, the lower the interest rate you’ll qualify for.

3 Things You Must Do Every Time Before You Refinance Again

There are a few things you must do before refinancing your loans for a second, third or fourth time. Doing these 5 things will help maximize the benefits while limiting the downside:

#1 – Check your credit report for errors. An error that hurts your score will cost you in terms of higher interest rates. If you do find any errors, report it to the credit bureaus and get it corrected. Also check that you haven’t missed any payments. The time spent checking your credit report is worth it. A healthy report is the key to qualifying for the lowest interest rate.

#2 – Compare lenders. Don’t just refinance with your current lender because it involves less work. Every lender uses their own criteria to approve refinance applications and to calculate interest rates. Comparing lenders will give you the best chance of discovering one offering the lowest rates.

#3 – Read the fine print. Some lenders set unusually low interest rates to entice borrowers. They then offset their low rates by charging origination and other fees. Refinancing should not cost you anything. When comparing lenders, don’t just compare interest rates. Calculate how much the refinanced loan will cost you taking into consideration the interest rate and all fees. Then choose the lender offering you the lowest rate.

 

We hoped you enjoyed this article! Remember, you can and potentially lower your monthly student loan payments and save money.

The Refi.me team is always here to help you