Looking to refinance your student loans? You’ll need to choose a lender. Refinance lenders vary considerably in terms of eligibility requirements, interest rates, penalties, and every other aspect. Asking these questions when choosing a student loan refinance lender will increase your chances of finding a lender that’s a good fit for you.
Unlike the federal government, private lenders don’t offer all borrowers the same interest rate. Every lender sets their own rate of interest, which is published on their website but even that’s not the rate you’ll pay. Every applicant gets a customized interest rate.
You can determine your estimated loan rate yourself using an online refinance calculator. Alternately, you can ask prospective lenders for your estimated interest rate.
When you ask the lender, they will first do a soft credit pull and review your financial history. They will then calculate your estimated rate based on your credit score, payment history, and a few other factors. This allows you to compare interest rates offered by multiple lenders without damaging your credit score.
Private lenders typically offer loan terms of 5, 10, 15, and 20 years. But there are a few who may offer terms that are shorter or longer than the average. It’s a good idea to ask about your repayment term options at the outset. Choosing the shortest term possible is the best option if you can afford the higher payments. A shorter term means lesser accrued interest and increased savings.
Look for a lender that offers a repayment term that aligns with your refinancing goals.
Many lenders impose a minimum refinancing request. This is to make sure that processing the loan is worth their time. There are a lot of formalities involved with refinancing. It takes several man hours, which costs the lender. Processing a larger amount is worth their time as it means higher profits.
Before shortlisting a lender, make sure you meet their minimum refinancing requirements.
Minimum income requirement is not a standard criteria for refinancing student loans. However some lenders do require you to be earning a specified minimum to qualify for refinancing. This is because anyone earning below a certain amount is more likely to find the payments unaffordable and default on their loan.
Don’t presume the lender doesn’t have any minimum income requirements just because it’s not mentioned on their website. If there’s no mention of minimum income requirements, make sure to ask and confirm before you fill out the application.
Most lenders offer cost-free refinancing in order to compete with other lenders. A few lenders use other tactics to beat the competition. They offer rock-bottom interest rates and charge origination and other hidden fees to offset the low rates. If this happens, you may unknowingly be paying more for the loan even though the interest rates appear to be the lowest. This information may be hidden in the fine print where you may overlook it. If you ask the lender however, they are obliged to inform you about their fees.
Not finding out about the fees could be an expensive mistake. Make sure to ask the lender and clarify.
Lenders often offer perks in the form of rate discounts if you meet certain criteria. For example, you could get a rate discount of 0.25% for setting up auto-pay for your repayments. Or you could earn a further rate reduction on making a certain number of on-time payments. These small discounts add up to sizeable savings on the overall cost of the loan.
It’s worth asking lenders about the various discounts they offer. This could make the difference when comparing two lenders offering similar terms.
All lenders offer fixed rate loans. However, not all lenders offer the variable rate option. Fixed and variable rate loans work very differently. Each has their own set of pros and cons. Generally, variable rate loans are a better option if rates are dropping or if you’re planning to pay off your loans faster.
If the rate environment is favorable for choosing a variable rate, you want to look for a lender that offers this option.
While paying off your debt, you may come into extra cash whether in the form of gifts or work bonuses. Using this towards a loan payment can help you clear your debt faster and also save money on interest. However, lenders have different policies as to how they handle additional payments. Most lenders put that money towards fees first, then towards accrued interest and lastly towards the principal. This works in their favor, not yours. Ideally, you want the additional payments to be put towards the principal first for maximum savings. You’ll also clear the loan faster.
Ask the lender if you can request that additional payments are put towards paying off the principal.
If your credit score doesn’t qualify you for refinancing you should explore the option of refinancing with a cosigner. When you do this, the lender will determine approval as well as interest rate based on the cosigner’s credit score. If your cosigner qualifies for a lower interest rate, you could save a few hundred dollars on interest. Not all lenders offer this option though.
If you’re planning on refinancing with a cosigner, you want to make sure that the lender offers this option. It’s just as important to inquire about the cosigner release requirements.
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.