Being stuck in debt can be disheartening, and your one wish is to be done with the repayment quickly. This is also the case if you have an outstanding student loan that you wish to settle before it increases and goes out of hand. In such a scenario, the best thing to do would be to refinance your student loan.
Student refinancing involves approaching a new lender for a new loan with a faster payoff or better interest rates to clear your existing student loan. If you’re thinking of refinancing your student loan and don’t know how the process works, the following outline may prove beneficial.
1. Consider Whether Student Refinancing Is The Right Step To Take
Before you decide to go with student refinancing, first try and see whether refinancing will help you save money. This is because the refinancing strategy isn’t ideal for everyone. To meet the lender’s eligibility criteria to refinance your student loan, you must have a superb credit score to be granted the lowest possible interest rate.
2. Check Your Credit Score
The Department of Education won’t check your student credit score before giving you a student loan. However, this isn’t the case when you opt to take out your student loan from a private lender. This is important for the lender as they want to gauge the likelihood of your repaying the loan.
When seeking to refinance your loan, the lender will require you to at least have a credit rating that’s around 650. Having a higher credit score qualifies you for improved interest rates.
3. Research Different Lenders
Different lenders offer different loan terms. Therefore, you need to do your research first and find out which lender is best suited to your needs. Ideally, you want a lender whose interest rates and fees fall within the figures you’re willing to spend after doing your calculations on the student loan calculator.
You shouldn’t be in a rush to find a lender and should at least get in touch with three different lenders before choosing. This will give you a much clearer picture before making any binding loan agreement.
4. Compare The Different Rates And Terms
When searching for the ideal lender, there are several aspects you should consider, including;
- Type of interest rate – Is the interest rate variable or fixed?
- Payment flexibility – Is there room to apply for hardship leniency after losing your job? Can you reschedule payments if you resume your studies?
- Loan Terms – What’s the duration within which you must finish the loan repayment?
- Fees – Are prepayment penalties applicable? Will you be charged origination or application fees?
Because your refinancing goal is to shorten the payment term and interest rates, it’s always best to go through such details. This way, you’ll be in a better position to pick out which lender offers you an excellent deal.
5. Complete The Application Process
After finding a suitable lender, the next step is to submit the appropriate documents needed to finish the application process. Even when you’re prequalified, this is deemed necessary. In addition, you’ll be requested to provide additional details about your existing loan and other crucial documents, including;
- Government-issued ID
- Proof of residency
- Loan or payoff verification statements
- Proof of graduation
- Proof of employment
- Name of the school you attended
- The degree attained at college
While most lenders won’t require you to provide each of these details, they’ll request a combination of either of these. They may also request your permission to verify your interest rate themselves.
6. Sign The Last Documents
If your request for student loan refinancing is successful, your new lender will pay off your current loan. But before this, you should first sign several final documents accepting the loan terms. After signing the loan’s last final disclosure documents, a three-day rescission period will start. You can cancel the student loan refinancing agreement during this period if you have a change of heart.
Nonetheless, this process isn’t done instantly and, in some cases, takes several weeks. While you wait for this to be done, continue making your loan repayments to avoid any possible negative credit reporting or late fees.
Takeaway
Having a student loan may be necessary for you to complete your college education successfully. But once you’ve graduated, settling it can become quite hard as you might also have other loans to clear. Fortunately, refinancing your student loans enables you to consolidate all this, making the process a lot simpler. This may, in the long-run, also help you save money as you might pay a lower interest rate.
