When you apply for refinancing, the lender will offer you a choice of multiple loan terms. Most offer loan terms of 10, 15, 20, 25, and 30 years though this may vary among lenders. Choosing the loan term that works best for you is no easy decision. The term you choose will determine your monthly repayments. It will also impact the total cost of your loan. It’s important to understand the pros and cons of each option in order to make a decision that works best for you.
A 10-year refinance is usually the lowest loan term you can choose. Very few lenders will offer you a loan term that’s less than 10 years.
With a 10-year loan term, your total loan amount is divided into 120 payments. Because of the shorter loan term, the monthly repayments are generally higher than what you’d pay with a longer loan term. This may or may not work for you. A look at the pros and cons of a 10-year refinance will help you decide whether or not this is the right option for you.
First, let’s cover the benefits.
When you sign up for a 10-year refinance, you’re agreeing to pay off the total loan over a considerably shorter time span. The biggest advantage of this is that you’ll pay off your debt more quickly. The sheer relief that comes from being debt-free in 10 years instead of 30 years cannot be underestimated. Once your debt is cleared, you’ll have the total financial freedom to spend your money on whatever you want. You don’t need to budget or worry about payment deadlines or missed payment penalties.
The longer the loan term, the more the interest that accrues. This can increase the cost of the loan considerably. When you choose a shorter loan term, the interest that accrues will be much lower. You’ll save the most in interest when you choose a 10-year refinance option.
Next, we take a look at the drawbacks.
The only way to pay off a loan in a shorter period of time is by making higher monthly payments. Whether or not this works for you will depend on your monthly income and your monthly expenses.
A 10-year refinance offers two very compelling benefits – lower loan cost and earlier freedom from debt. However, the higher monthly payments can be a major downside. If for any reason you cannot afford to make the payments, you will be at risk of default. This can cost you in terms of missed payment fees. It will also damage your credit score.
You should consider a 10-year refinance only if you have a steady income. Moreover, your income should be high enough to comfortably cover your monthly expenses as well as your loan repayments. Use an online refinance calculator to determine what your monthly payments will be with a 10-year refinance. If you have room in your budget to cover the additional monthly payments, you should definitely go ahead and choose this option.
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.