Do you want to reduce the burden of the high-interest rate on your education loan? Is your education loan costing you a huge repayment amount in the long run? If your answer is yes, then refinancing of your education loan is certainly the right option for you. It is the process of taking up a new loan at a new and lowered rate of interest to pay off the existing loan. It can turn out to be a boon for all those students who are facing problems in paying off their existing study loan on time.
Being an entirely different phenomenon from consolidation, people often erroneously use both the terms parallelly. While a refinancing can help you in saving on interest rates, consolidation does not offer any kind of interest savings. Additionally, refinancing has a cutting edge over consolidation for the students who have borrowed a student loan from private organizations or those who have a combination of private and federal education loan.
Also read: How to manage your education loan?
Why prefer refinancing?
Whether you wish to get out of the debt faster or save money, in both the conditions, refinancing a student loan can turn out to be helpful in the following ways.
Lower monthly payments
With the help of refinance, the students get the flexibility of extending their repayment period and reduce the rate of interest on the new loan. This further reduces the amount of monthly payment as well.
Shortened loan term
If you are capable of making higher contributions that the existing repayment plan, you can shorten your loan term with the help of refinance, that too at lowered rate of interest.
Lower interest rate
You can also reduce the interest rate of your new loan on the basis of your respective financial situation and credit score.
Releasing a co-signer
A student loan refinancing can help students to release their co-signers from the burden of loan thereby improving their credit scores as well.
Important tips to consider for refinancing
Now, when you have decided to apply for an education loan refinance after considering your existing financial situation, you need to take the following key factors into consideration as well.
Your credit score
The chances of your refinance application getting accepted depends majorly on your respective credit scores. In general, a credit score of 700 or higher is considered to be a good score to maximise the chances of approval.
Getting an education loan refinances essentially required you to have a permanent job or written offer of a job since most of the lenders give preference to students having a certain amount of work experience.
Your debt-to-income ratio
This is yet another criterion that helps the lenders in giving approval to the refinance applications. This ratio compared your total monthly income with your overall debt obligations within a month.
Having these facts intact in your mind, you can start looking up for the organizations that offer refinancing services. However, it is advisable to make sure that you do your market research about the interest rates and other factors before applying.