You walk across the stage, receive your diploma, and like that you are a college graduate! You spend the rest of the day celebrating, but the following day, reality sets in. You remember you now need to get a job and start paying back all the money you borrowed to get through school. You may ask yourself the following questions: Did I get the best deal on my loan? Should I refinance? How do you go about refinancing? Fortunately, for many graduates, refinancing can be a great opportunity to help with loan payments. The tips below will help you determine if refinancing is your best option, and how to make the process painless and effective.
Where do I start?
First, you have to ask yourself why you are refinancing. Do you want to lower your interest rate, or would you like a longer term to lower your payments?
Once you have determined why you want to refinance, I would recommend reviewing your credit report. You can get your credit report for free by using Credit Sesame. If there are any discrepancies on the report, dispute them. This could improve your score and, in turn, improve the terms of the loan.
What lending company should I choose?
There are hundreds of companies out there that will help you refinance your student loans, but a select few rank above the rest. The five best, as provided by Student Loan Hero, are SoFi, CommonBond, LendKey, Earnest, Laurel Road, and Citizens Bank. All of these companies offer competitive rates with a variety of term lengths, ranging from 5 years to 20 years:
|Top Picks||SoFi||Laurel Road||Common Bond||Lend Key||Earnest|
|Variable Rates||2.79% – 6.72%||3.76% – 6.42%||2.79% – 6.72%||2.66% – 6.20%||2.79% – 6.46%|
|Fixed Rates||3.35% – 6.74%||4.20% – 7.20%||3.35% – 6.74%||3.25% – 7.26%||3.35% – 6.49%|
|Terms (Years)||5, 7, 10, 15, 20||5, 7, 10, 15, 20||5, 7, 10, 15, 20||5, 7, 10, 15, 20||5 to 20|
|Min. Credit Score||690||680||660||680||660|
|Soft Credit Check||Yes||Yes||Yes||Yes||Yes|
|Min. Annual Income||No min||No min||No min||$24k||No min|
|Avg. Time To Check Rate||2 Minutes||2 Minutes||2 Minutes||2 Minutes||2 Minutes|
|Check Rates||Visit SoFi||Visit Laurel Road||Visit Common Bond||Visit Lend Key||Visit Earnest|
*The actual interest rate you will receive is based upon your credit score, income, savings, degree type, and/or presence of a co-signer. To increase your chances of getting approved and receiving the lowest interest rate, it is recommend applying with a co-signer.
If you have private and federal loans, SoFi may be your best bet, as they will refinance both loan types together. Be careful when refinancing a federal loan because you could be giving up some perks, including income-based repayment and loan forgiveness.
It is important to apply to several different lenders. Odds are not all of them will offer the same interest rate and terms, so shop around and get the best deal you can find. Also, you will want to take into consideration flexible payment options. This would give you the ability to change your payment amount or defer your payment for a few months if you hit a rough patch. Lastly, make sure to select a lender you are comfortable with and exhibits good customer service.
What will my interest rate be?
The interest rate you pay depends on your credit score, as well as things like income level, other debts, and employment.Get Your Latest Credit Report - 100% Free
Before starting the refinance process, pay down your debts as much as possible. Companies like to see a debt to income ratio below 30%. For example, if you make $100,000 they would like to see your total debts below $30,000. Another way to reduce the ratio would be to increase your income.
There are two different types of interest rates. There is a fixed rate, which will stay the same throughout the life of the loan, and a variable rate, which changes as regular interest rates change. Variable rates are generally lower than fixed, but you run the risk of interest rates increasing in the future.
Some lenders may reduce your rate slightly, usually .25%, if you sign up for automatic payments. This will withdraw your payment on the same day every month and apply it to your outstanding balance.
What will I need?
Whether you apply in person or log onto a website to begin your refinance process, you will need to have your social security card, your Driver’s License or state issued ID, your most recent pay stubs, and statements from your current student loans. Make sure the statements include the original balance, date of disbursement, and a full history of repayments.
If, unfortunately, you don’t qualify for a lower interest rate or the terms are not favorable, you can always ask someone to co-sign with you. If your co-signer is a parent with better credit and a stable income, that will look more favorable to the lender and, likely, will improve the terms of the loan.
After you submit your application, make sure you continue to make your current loan payments. The approval process takes about two to three weeks, so it’s important to not lapse on any of your current liabilities.
If you have a high balance, use longer term periods in order to keep your monthly payment manageable.
Student loan refinancing can be a long and complicated process, but if you do it correctly by utilizing the tips provided, it can save you a lot of money in the end.
Use the comments section below to ask any questions or to provide feedback.
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