There are many times when it makes sense to refinance your student loans, such as when the terms and interest rates for private loans are good. Refinancing may also be a good idea if you want to combine several loan payments into one or switch to a different payment plan so you can pay off your debt faster.
If you want to get ahead by refinancing your student loans, you should try to avoid the following mistakes:
Not comparing rates and terms of loans
Before you refinance, it’s important to compare the rates and terms of your student loans. After all, your interest rate will decide how much you have to pay each month, how much interest you have to pay each month, and how much interest will cost you in total over the life of your new loan.
Like other financial products, student loans often have better rates and terms depending on the lender. But if you don’t do the research, you won’t know what kind of rate you’ll get. Here’s my advice: take the time to use a free credit pre-qualification tool to figure out how likely you are to be approved without making a hard inquiry on your credit report. Before you apply, this step will show you what kind of rate you might get.
Not only that, but you should also compare companies that offer student loans based on the ways you can pay them back. You should try to find a company that lets you decide how long you want to take to pay back the loan, since that will affect both your monthly payments and the total cost.
Not Trying to Find a Cosigner
If you’re worried that you won’t get the best rates and terms, remember that you might not have to go through this process on your own.
If you have someone in your life, like a spouse, who can cosign on your loans, you might be able to get one with lower interest rates than if you applied on your own.
A free credit pre-qualification tool can also be used by the person who might cosign with you. Doing this will help you figure out if having them on your application for a student loan could help you get better rates and terms.
If you don’t check for fees,
Checking your rate and the rate of your possible cosigner is a good first step, but it’s not the only thing you should compare. You should also compare the fees that student loan companies charge to each other (or lack thereof).
Keep an eye out for hidden fees, such as those for origination or application, which you should avoid at all costs. Check to see if there are any prepayment penalties. These are extra fees that you have to pay if you want to pay off your student loans early.
Most lenders, like College Ave Student Loans, offer student loans with no origination or hidden fees.
Not Guessing What Your New Monthly Payment Will Be
You might think that if you refinance your student loans to a lower rate, you’ll save a lot of money. But before you do anything, it’s best to find out how much money you can save.
This is where a good calculator for refinancing student loans comes in. You can put in the amount you owe, the number of years you plan to pay it back, and your estimated interest rate to find out how much your total interest could be and how much your new monthly payment could be.
Using a refinance calculator, you can also compare the total interest and monthly payments for different payment plans. For example, if you decide to pay back your student loans over 15 years instead of 10, you’ll probably have a lower monthly payment. But if you wait longer, you’ll have to pay more in interest. Take this important step to figure out if your new estimated monthly payment will fit into your budget and save you money in the long run.
Not asking about discounts
Don’t forget to look into any student loan discounts you might be able to get when you refinance, like College Ave’s 0.25% interest rate cut for auto-pay. You can get the discount once you sign up and agree to have money taken out of a valid bank account every month.
Forgetting to protect federal loans
Lastly, it’s important to keep in mind that if you use a private lender to refinance your federal student loans, you will lose some federal protections, like the ability to use a repayment plan based on your income.
Borrowers of federal student loans may also be able to get their loans forgiven through programs like Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness. But you won’t be able to use these programs if you switch to private student loans.
Do your homework to avoid trouble.
These Mistakes When Refinancing a Student Loan
Refinancing your student loans can be helpful, but you’ll get the most out of it if you don’t do any of these things. Compare interest rates, loan terms, and fees before deciding on a new loan. Don’t forget to think about whether you need a cosigner to get the best terms.
In the meantime, before you apply, try out a student loan refinance calculator to get an idea of what your new monthly payment might look like. And don’t forget to include that discount if you’re willing to set up automatic payments.
By doing these things as you compare the best companies to refinance your student loans, you can make the process less stressful and find the best deal for you.