Getting a student loan to finance your education is a brilliant idea. You are guaranteed of completing your studies and making repayments once you have graduated. There has been an increase in the number of private lenders who refinance student loans.
Refinancing student loans
As such, students have a choice of refinancing their loans. However, you need to ask a few questions before you decide to refinance such loans. This post addresses the questions to ask before refinancing student loans. Here are three questions you need to ask yourself before you opt for refinancing your loan with private lenders.
Will you be able to exchange the federal loan protection with a lower rate?
The good thing about the federal loans is that the interest is fixed and it does not change with the changes in the economy or an increase in interest rate. However, when the economy has low interest rates, the federal rates can be a bit high.
The rates for subsidized undergraduate loans were ranging from 3.4% to 6.8% while the unsubsidized undergraduate loans where between 3.86% and 6.8%. This rate is high compared to the private refinancing that has rates of 1.9%. There is no doubt that you will save a lot of money if you refinance.
Do you qualify?
Given the low interest rates offered by private lenders, you may be tempted to go for refinancing. You need to know whether you meet the eligibility requirements. You should have a credit score of above 620, good income, stable job and low debt to income ratio. As such, you need to have a good credit history too.
In case you are a graduate, you have to ensure that your loan payments are up to date. These payments will play a significant role in improving your credit score. The application process for the loans is done online. The applicant needs to send a proof of their job security such as work contract.
What are the costs?
In case you have all the eligibility requirements, you can choose from the many lenders available. You can inquire from your bank. You need to carry out research before you settle with a given lender.
Some of the questions you need to ask are regarding origination fee, the loan terms, if the rate is variable or fixed, whether there is a penalty fee for prepayment and the benefits that the lender offers. By knowing all the costs needed, you will be better positioned to make flexible payments. Therefore, before you decide to refinance your loan have everything at your fingertips.