When you refinance student loans, the lender will offer you an interest rate based on your financial credentials. You will be able to choose your loan repayment term. Most lenders will give you the option to choose from 5, 10, 15, or 20 years.
Choosing the right loan term is very important. The term you choose will determine your monthly payments. A longer-term will lower your monthly payments but increase the overall cost of your loan. This is because of the higher amount of interest that accrues over the longer term. A shorter-term will mean higher monthly payments but a lower loan cost because of less accrued interest.
With higher monthly payments, you’ll clear your loan earlier and also pay less in interest in the long run. However, this may or may not be an affordable option depending on your monthly income and your other monthly financial obligations.
To determine your ideal monthly payments you must consider your monthly income and expenses. How much cash do you have leftover every month after you’ve paid off all essential expenses? If you have cash left over, you can consider increasing your monthly payments. Here again, you have to be careful about how much you increase the payments. If you’re just managing to cover your expenses and debt payments, leave the loan as is. If you’re struggling to meet the monthly payments, then you may want to lower the amount.
The best way to calculate your ideal monthly payments for student loan refi is by using a refinance calculator.
A refinance calculator is an online tool that many lenders offer on their sites. It allows prospective borrowers to calculate their ideal monthly payments on the refinanced loan.
Refinance calculators are very user-friendly. All you need to do is enter the information asked for. The calculator then works behind the scenes to display what your monthly payments will be.
Most refinance calculators will take you through these steps:
Here you need to enter the loan balance, interest rate, and remaining loan term or monthly payments related to your current loan.
In this section, you enter the new interest rate and loan term you are looking for in the refinanced loan.
Once you’ve entered all the above information, click the ‘Calculate’ button. Within seconds the refinance calculator will tell you what your monthly payments will be. Can you afford the monthly loan payments using your chosen loan term? If it’s too high or too low you can recalculate multiple times using different repayment terms. This will help you calculate your ideal repayment term and monthly payments for student loan refi.
We hoped you enjoyed this article! Remember, you can compare your personalized rates with our lending partners and potentially lower your monthly student loan payments and save money.