What You Should Know Before You Refinance

When you think of refinancing student loans, don’t fall into the marketing trap of many lending companies. As an intelligent borrower, you have to understand the basic things of how to go about refinancing your student loans. It might seem easy enough to understand but you really need to go into the details to get a thorough appreciation. Here are some of the most basic things you need to know.

There are two kinds of student loans, namely private and federal. If you want to refinance your loans, you have to know the nature of your outstanding loans. Usually, federal loans have lower interest rates than private loans. Before you decide on consolidating your loans, be sure to know how much money you save in doing so as compared to paying your loans separately.

Student loan refinancing is typically like a regular loan. Lenders will get a peek at your credit history to determine your eligibility for their product. Thus, it would be wise if you start straightening up your credit records months before you actually apply for refinancing. With a high credit score, you can expect to get better rates from your lender as well as reduced administrative fees.

Interest rates on federal loans change once a year, usually on the first of July. If you are wary of getting a higher interest rate for your loan once the change occurs, avail of one before this period. Different lenders have different requirements and criteria to be met before becoming eligible for refinancing. It is to your advantage that you know these requirements before applying so that you don’t waste your time applying only to be ineligible in the end.

Refinancing student loans is a big responsibility to take. Therefore, you have to be very careful before signing any agreement with your lender. Take time to read and reread your policy to understand all your rights and responsibilities as a borrower. Don’t miss out the fine print of the agreement because the surprises are usually stated there. If you have other ways of reducing your student loan repayments aside from consolidating them, consider each one carefully and know its pros and cons.

You should also take advantage of the promos, discounts, and incentives that lenders give their borrowers if you are up to date with your payments. Other instances where you can avail of discounts are when you pay early or have an automatic debit arrangement for your payments. Taking advantage of these incentives can make you save over a full 1% of your payments each month.

True enough, refinancing student loans is not as complicated as it sounds. However, you really need to set aside time to go into the details of your agreement with your lender. When you’ve taken the appropriate steps to refinancing, you’ll see that it is a good way for you to repay your student loans without straining your budget.