Student loans can be scary because they take a long time to pay off, and you don’t want to mess up and make the loans bigger. Refinancing is a great way to reduce your debt, but when is a good time to refinance? This will discuss when you should look for a new lender to take over the loan.
A Lower Rate is Available
The simplest answer is that you should almost always refinance when a lower rate is available. For example, you might wonder what is the average student loan interest rate? According to Lantern by SoFi, “5.8% is the average student loan interest rate.”
Your loan might differ, but most people find it around this amount. For example, if you find a lender offering a loan with a lower interest rate, you’ll want to take advantage of their program. Some lenders also offer bonuses, which makes it even better for you.
High Variable Rates
You may also want to consider refinancing if you have high variable rates. The good thing about variable rates is that they can go up and down. Sometimes it feels like gambling, but you could get lucky and have low rates. The problem is that those low rates can quickly skyrocket.
While low variable rates are reasonable, chances are that they’ll become higher with time. So it’s often best to lock in a low fixed rate so you don’t need to worry about the payments becoming harder.
Your Finances Improved
Lenders frequently consider your financial situation and security when offering an interest rate. Those who make less and have low credit scores will often experience higher interest rates. This is because it’s riskier to lend money to them.
If your finances have improved, then consider refinancing your loan. You can do this when you get a significant raise or after paying off some credit card debt. If your credit score has gone up, then there’s a chance that you qualify for better interest rates.
Good Rate Environment
Sometimes interest rates change due to economic conditions. For example, you may have heard that interest rates are going up or down depending on the economy. The problem is that lenders won’t automatically change your interest rate if you have a fixed loan.
If the overall interest rates are down, then it could be worth looking into refinancing. This can help you save thousands of dollars with ease.
Private Loans
Many students get private loans while others get them right from the government. However, government loans have some benefits, such as Pay as You Earn plans or having the loan forgiven after 120 payments under certain circumstances. If you have private loans, then you won’t see these benefits. Because of that, you should always seek out the lowest interest rate if you have private loans.
When should you refinance a student loan? Unless you have a government loan, you should refinance whenever interest rates improve, your finances improve, or a lender offers bonuses and a lower rate. This can help you save a significant amount of money.
