Refinancing your student loans is a smart move. It can help you get out of debt faster, lower the overall cost of your loan balance and improve your credit score.
However, it’s not always easy to know whether refinancing is right for you. In this guide, they’ll discuss why you might consider refinancing private student loans and how to get started.
Here Are Four Prime Reasons To Refinance Your Student Loans
1. Lower interest rates
You may be able to save money on your student loans. If you have several loans with high-interest rates, refinancing them into one loan could lower your overall cost of borrowing and potentially save you thousands of dollars in interest payments over time. This can be helpful if you’re considering taking on more student debt or attending graduate school.
Lowering your monthly payment also means that more money is available for other things like food, rent, utilities, and other necessities. In addition to lowering your payments by extending the repayment period from 10 years to 15 years or longer (depending on how much money is currently owed), refinancing can improve your credit score as well!
2. Borrower benefits
A lower interest rate means you’ll pay less in interest over the life of your loan, which is an obvious benefit. A longer term also means you’ll pay less in total interest, but it also locks you into that higher rate for a longer time. So before committing to a longer term, make sure you don’t have any plans to refinance again (or make payments on your own) after that new period ends.
Finally, if lowering your monthly payment sounds good—and it should!—you can do so by switching from fixed payments to graduated ones or extending them out over a longer period.
This can help significantly reduce how much money you’re paying each month and give more flexibility when it comes to managing other financial obligations like rent/mortgage or student loans, for which you may have better repayment options available than some private lenders offer.
3. Improved Credit Score
Refinancing student loans can help improve your credit score. When you refinance, you are increasing the amount of money you can use elsewhere and lowering your debt-to-income ratio. This means that when lenders check your credit score, it will likely go up since it won’t be as high because of all the money going toward paying off student loans instead of other types of debt.
In addition, refinancing student loans allows for lower monthly payments and quicker repayment times which in turn can make a big difference in helping to raise someone’s credit score over time.
4. Free up cash for emergencies or major purchases
One of the biggest benefits of refinancing your student loans is that it gives you access to more cash. If you’re using a federal loan, this can be used to help pay off other debts or start a business.
If you’re taking out a private loan, it can be used for any purpose—but if you don’t need it, consider saving up for an emergency fund or making a big purchase (e.g., buying a home).
According to SoFi professionals, “Save thousands or hundreds of dollars thanks to flexible terms and low fixed or variable rates.”
While you may be hesitant to refinance your student loans, the benefits of doing so can outweigh the costs. If you’re considering refinancing your loans, make sure to do all of the research into the process and its costs before proceeding with anything.