5 student loan refinancing mistakes to avoid
With interest rates coming down, it seems like refinancing a student loan is a smart financial decision. Student loan refinancing rates are as low as 3% (considering excellent credit) and the average student debt burden is $ 1.56 trillion in the United States – the Average borrower owing $ 37,172 – refinancing makes sense at the moment.
Borrowers can visit Credible to compare student loan refinancing rates from several lenders simultaneously.
“There are many scenarios in which refinancing a student loan makes sense, but there are caveats,” said Kalicia Bateman, student loan specialist at Best Company. “Most lenders who offer student loan refinancing services generally require borrowers to have an excellent credit rating,” she said. “Therefore, if your credit score has increased over time, you will be in a better place to receive refinancing approval with the most competitive rates and terms.
What Student Loan Refinancing Mistakes Should I Avoid?
With rates low, it can be hard to resist the urge to refinance at a lower rate. If this is the case, and a borrower goes ahead with a student loan refinance deal, be sure to avoid these traps on the way to loan approval.
Here are five student loan refinancing mistakes to avoid.
- Do not compare prices and conditions
- Refinance with a private lender if you are a federal loan borrower
- Don’t Check Your Credit Report For Errors
- Focus only on interest rates
- Disregard the CARES law
1. Do not compare prices and conditions
Be sure to compare the rates and terms of several lenders. You don’t need to take the first option you come across. “It may take more time and research, but taking the time to get the best rates and terms will be worth it in the long run,” Bateman said.
When it comes to recording purchases, Credible should be your site of choice. The multi-lender market can help compare rates and lenders instantly and show you how much money you could save by refinancing.
2. Refinance with a private lender if you are a federal loan borrower
Student loan borrowers should refinance federal loans using the federal student loan refinance options.
“If you refinance your federal loans using a private lender, you will lose all federal consumer student loan protections and the relief measures provided for in the CARES Law will no longer apply to your loans, ”Howard said.
3. Don’t check your credit report for errors
Studies show that 80% of credit reports contain errors.
“If you can pay off your debts and correct errors on your credit report to increase your credit score, you’ll likely get a better rate when shopping for a refinance opportunity,” Howard said.
Credible can reveal the rates you qualify for with your current credit score. You can compare student loan refinancing rates from up to 10 lenders without affecting your credit. What’s more, it’s 100% free!
4. Focus only on interest rates
One mistake under the radar that a borrower can make is to look only at the interest rate on the loan and not the repayment term.
“A lower interest rate coupled with a long repayment term could result in more interest paid to the lender than a loan with a higher rate and a shorter repayment term,” Howard said. “Every penny of interest that goes to the lender is a penny that the borrower cannot save for himself. Depending on the borrower’s goals and circumstances, it may be important to understand the total amount of interest paid to the lender over the term of the new loan.
With Credible you can see what student lenders are offering with regard to loan conditions and repayment terms. Start doing your research today so you don’t miss out on thousands of potential savings.
5. Disregard the CARES law
The temporary suspension of federal student loan payments linked to COVID by the CARES Act makes refinancing less attractive.
“This is the case until the currently scheduled suspension end date,” said Brian Martucci, personal finance expert at Money Crashers. “Currently, student loan repayments are expected to resume in January, but the suspension is very popular and could certainly be extended. During the suspension period, it is wiser to use the funds saved by the suspension to save for a possible lump sum payment once payments are resumed.
Visit Credible for Pre-Qualified Student Loan Refinance Rates – without affecting your credit score.
What Are the Benefits of Refinancing Student Loans?
Refinancing a student loan makes sense if the borrower is trying to do any of the following:
- Lower their monthly payments
- Get a lower interest rate
- Change the loan term
“Refinancing can also work if a borrower has multiple loans that could be more easily managed through consolidation,” said Jonathan Howard, financial advisor at SeaCure Advisors in Lexington, Ky. “For example, with federal student loans, there are provisions. Cash Back and Valuable Income Funding-based repayment options are only available if the borrower refinances their loans to a Federal Consolidated Loan.
Private student loans can also be refinanced.
Comparing prices for quotes from multiple lenders can ensure you get the most affordable loan possible. Use Credible to compare student loan refinance rates from multiple lenders and find the best deal.
“I’ve had private student loan clients come to me after helping pay for their daughter’s education year after year with student loans,” Howard said. “Interest rates varied between loans and they were having a hard time managing them. They took advantage of the refinancing and reduced their monthly payment by almost $ 500 thanks to lower interest rates.