Refinancing is nothing but paying off your existing loan by availing another loan which is usually at better terms and lower interest rates. However, when it comes to student loans, it is usually done to reduce monthly payments.
You can find several options to accomplish it, such as consolidation programs and even through programs and banks of the government. However, there are several things to consider in refinance student loans.
Private student loan and a federal loan
In case you have a private student loan and a federal loan then you will have to refinance it using separate plans. You can receive a lower interest rate plan with a federal loan compared to a private loan. It is because they are private loans which are usually based on assumptions that the income level would increase after the student graduates.
Therefore student loan refinancing is often rated at higher levels. In case you try and mix up these two different loan types then you might often end up paying a higher interest rate through a combined principal than what you can expect to pay separately for refinancing.
Research the rates
It is important that you research well as student loan refinance rates can vary from lender to another. Make sure to check your credit scores before applying because the interest rates can vary according to your credit history. So, make sure your credit card history show positive results before refinancing.
However the rates for federal student loan refinancing might only change once in a year, and as they are quite low, they can even be subject to fluctuations.
Refinancing your student loan can be a good option, but under certain circumstances. According to the current statistics, the interest rates have been lower, but they are rising while most of the economists agree that they would continue rising. Moreover, most of the student loans are often based on variable rates of interest which are not locked until the loan is refinanced or are consolidated with a separate loan.
Required to have good credit history
The options for refinancing student loans are only available to those students who have maintained a good credit history by making timely repayments. In case you have missed or made a late payment then you can expect to receive slightly high-interest rates for your private student loans.
The fact is that student loan refinancing rates are offered at just 1 or 2 points less that what your current rates are. It is just to make the loan more attractive, but you should always be cautious and do your research well. You should know that a good refinancing package should offer you the opportunity to lock down your interest rates while also letting you extend the life of the loan. The refinancing loan package should also be an affordable and easily manageable option.