Looking to refinance those loans? Good move. But you need to know you’re on the right track. Here are the questions you need to ask yourself.
If you’ve graduated with multiple student loans, you’re probably considering consolidation. Student loan consolidation can be a great option to reduce the number of payments you make each month and to make it simple to track your remaining debt.
Student loan consolidation can be a great option to reduce the number of payments you make each month and to make it simple to track your remaining debt.
However, there are some key questions to ask before you choose a refinancing offer. Consider these seven questions as you investigate student loan consolidation.
Why Are You Refinancing?
Before you move forward and consolidate your loans, you want to make sure you know why you’re refinancing. Are you looking for a lower interest rate? Lower monthly payments? Do you just want a single payment instead of having so many?
Your goals will tell you a lot about what considerations matter most as you compare refinancing offers.
What Will the New Interest Rate Be?
There are two types of interest rates: variable and fixed. A variable rate can change based on the treasury base rate. A fixed rate will remain the same for the life of the loan.
You want to make sure that refinancing doesn’t cause you to pay significantly more interest than you are currently paying. The lender will base the interest rate you get on internal standards and your credit rating, among other factors. Compare carefully before deciding.
When Will You Be Done Repaying?
A refinancing offer with small monthly payments may look great, but you want to pay attention to how long it will take you to pay off the debt completely. You don’t want to be on the hook for student loans in middle age if you can avoid it!
Is a Cosigner Required?
Using a cosigner to get approved for a loan can be difficult. If you need a cosigner, you will need a trusted friend or family member to sign the new loan with you. If anything goes wrong, they are responsible for payments and their credit rating may be damaged.
If you need a cosigner, try to find a consolidation loan that has a cosigner release clause. A release allows the cosigner to be removed from the debt after you’ve made a certain number of payments on time.
Is There Flexibility in Times of Hardship?
Getting a loan refinanced can give you a lot of advantages, but if you’re moving from a federal loan to a private loan, you could lose a lot of flexibility. Check to see what repayment plans are available, whether you can change repayment plans if needed, and what forbearance options are available if you hit tough times.
What Kind of Support and Customer Service Does the Lender Provide?
Having a low-interest rate and an affordable payment may seem like the perfect scenario, but you should make sure the bank is reputable and has good service.
Be sure to read reviews and do your research before you choose a lender.
What Can I Afford Long-Term?
Your final decision has to be based on what you can afford, both now and in the future. You can determine your current income and budget, but how do you decide what will happen going forward?
One way to predict future earnings is to look at the average income for different jobs along your career path. This forecasting is especially important if the new loan you choose has increasing payments over time. You want to ensure you can afford future payments as well as today’s bills.
Deciding to refinance your student loans can help you get better interest rates, lower payments, and more. Asking the right questions is vital to making sure you don’t regret your decision.