Refinancing your student loans is a financial strategy that can save you money in the long-term. The sooner you refinance, the better!
Student loan refinancing allows you to take out a new loan to pay off your other student loans with the purpose of paying less in interest or decreasing your monthly payments. This is a popular method for not only student loans but other loan types, like mortgages, auto loans, and personal loans.
If your credit score and financial history are in good shape and you want to save money on your student loans, student loan refinancing is for you. For everyone else, it may not be worth it. Keep reading to learn why.Private Student Loans
Does Student Loan Refinancing Cost Money?
The great thing about refinancing student loans is that it generally doesn’t cost any money, unlike other types of refinancing which come with various fees. When you refinance student loans, there are no origination fees, prepayment fees, or application fees.
With that said, always read the fine print when comparing lenders to ensure there are no hidden costs.
Hits to your credit
While it shouldn’t cost you anything to refinance your student loans, you should be aware that submitting applications for a loan will hurt your credit score, but only temporarily. So you should only apply for refinancing if you feel confident that you’ll get approved.
What to consider before refinancing your loans
Some factors to consider when considering student loan refinancing:
- Is your income stable? When applying for a loan, lenders want to see that you’re employed and have steady income. This assures them that you’ll make your payments on time.
- Do you have good credit? While not all lenders will have a minimum credit score requirement, it might not be worth it to apply for student loan refinancing if you don’t have good credit. Your chances of getting a better interest rate than what you already have will be greater if your credit score is 600 or higher.
- Is the school you attend eligible? Most lenders will require your school to be eligible for federal aid dollars when refinancing your student loans.
Shop Around For the Best Rates
Remember when we said that submitting applications for a loan will hurt your credit score? You can still compare rates from various lenders without affecting your credit score. This is known as a soft credit check.
Many—but not all— lenders, including banks, credit unions, and online lending institutions will only run a soft credit check when pre-approving you for a loan. This means you can compare and check with several lenders to find the best interest rates.
To get pre-approved for student loan refinancing, most lenders will allow you to first submit a preliminary application to see what kind of rates you qualify for.
This application (depending on the lender) will often only take a few minutes to fill out, is completely online, and will get you rates immediately.
Here is some basic information you may be asked in your preliminary application:
- Citizenship status
- Date of birth
- Contact information, like home address and phone number
- Living arrangement (renting or homeowner)
- Highest degree completed
- Employment status
- How much you’d like to borrow
- Social Security number
Once you move forward with your application, you’ll need additional information and documents with your application, like a pay stub, tax form, and official statements for your private or federal student loans.
How You Save Money
So you may be wondering, how does knocking down the interest rate by a couple points save you