How Can I Refinance My High Interest Student Loan?
Refinancing a student loan has a number of benefits, including decreasing monthly payments by lengthening the repayment term and sometimes decreasing the interest rate as well. If you have high-interest student loans, these are likely private student loans because federal student loans have low-interest rates. You can consolidate several private student loans into one loan.
Instructions
1. Wait until you are out of school. Most lenders will not refinance student loans when you have an in-school status.
2. Increase your credit score by paying all bills on time, removing errors from your credit report and decreasing the balances on your credit cards. Your interest rate for the refinance will be mostly based on your credit score.
3. Find out the outstanding balance and the interest rate on your student loan that you would like to refinance. You will be shopping for a new loan with this same amount and ideally a lower interest rate.
4. Look up the repayment term on your current student loan. This is the amount of time between now and when the loan will be completely paid off. Refinancing with a longer repayment term than your current one will lower your monthly payment but increase your overall interest charges.
5. Research lenders who offer private student loans. Options include lenders such as Sallie Mae, national banks such as Wells Fargo, Chase or Bank of America, and local credit unions. Find out the current range of interest rates they offer for student loans. Your exact rate will depend on your credit score, but lenders who offer rates as low as prime plus 1 percent are generally better than lenders with the lowest rate of prime plus 4 percent.
6. Find a person who has a good credit score and would be willing to co-sign on your refinanced loan. Co-signing means that this person agrees to be held jointly responsible for repaying the loan, so the person will have to trust that you will make your payments on time. Adding a co-signer with good credit to your application can help you get a better interest rate.
7. Apply for a student loan refinance for the amount you need and your desired repayment term.
8. Read the terms of the loan you are offered. Look especially at the interest rate, repayment term and the fees. If the interest rate is higher than that of your current loan, it may not be worth it to refinance, especially if there are fees as well. However, if you are refinancing to a longer repayment term to lower your monthly payments, you might decide to take the extra costs anyway to reduce the strain on your budget.
9. Sign the loan agreement and arrange with your new lender to send the money to your old lender to pay off your high-interest student loan.
Tags: interest rate, student loans, repayment term, your credit, credit score, student loan, private student