When you refinance, you’re essentially exchanging your existing loans for another loan. The process requires the lender to pay off your current loans and issue you a new one. It has a different term length, different interest rates, and different conditions.
The most common reason people choose to refinance student loans is to change the terms of their original loan. As your financial circumstances change, the old loan term may no longer work for you.
If you’re earning a high income, you may want to increase the monthly payments and pay off the loan earlier. If you’re struggling financially, you may want to extend the loan term to lower the monthly payments. You cannot change the term of your existing student loans. This can only be done by refinancing your loans.
The most compelling reason for refinancing student loans is to get a lower interest rate on your loan. If you qualify for a lower interest rate, the savings in accrued interest can be substantial. Even a point percent rate reduction makes a difference over the years.
Lenders publish an average interest rate for refinancing student loans on their website. But that’s not the interest rate you’ll pay. When you apply for refinancing, the lender will calculate a personalized score for you based on your financial credentials. This includes a variety of factors but the main factor that’s considered when calculating interest rates is your credit score.
The higher your credit score, the lower the interest rate you’ll qualify for. This is because a high credit score indicates that you’re a responsible borrower and that you manage your debts well. This is reassuring to lenders who prefer to deal with borrowers who are more likely to pay back the loan on time.
Minimum credit score requirements vary among lenders. For most lenders, the minimum credit score to get approved ranges from 650 to 680. But a credit score in this range will only qualify you for refinancing. It may not be good enough to earn a lower interest rate with all lenders.
To get for a lower interest rate, you’ll need to have a credit score of 700 or more. The higher the score, the more the rate drops and the more you save in accrued interest. Your credit score ultimately determines how much you’ll save in interest over the life of the loan. It’s worth waiting to improve your credit before refinancing your student loans to maximize your savings.
Do these consistently for the fastest way to improve your credit and maximize your savings when refinancing student loans:
It will be worth all the effort.
We hoped you enjoyed this article! Remember, you canand potentially lower your monthly student loan payments and save money.