College can be quite expensive. In most cases, students may have to take a loan so that they can pay for their studies. Getting the loan is not tedious, but the process of paying is the issue. The worst part is, the more you delay to pay the loan, the more interest it gains.
Different lenders, such as Suntrust offer different student loan options. Refinancing the loan is where a private lender takes on your loan and offers you a new one with a new rate and payment schedule. If you have a high-interest private loan, and you are a graduate, refinancing can be a great option. However, before you refinance your loan, it is good to know what you are getting yourself into to be sure it is the right decision.
This article will take you through the pros and the cons so that you can make an informed decision.
Less monthly payments
Life after college can be quite hard. Your income may not be what you had imagined. You may find it hard to pay the monthly amount needed by the lender. By refinancing, you will get to choose the amount you want to pay per month as per your income depending on the different offers from lenders.
By refinancing, you can get low rates that help in reducing the amount you pay. With the growing economy, competition has become stiff, and many lenders have emerged with better terms.
When you refinance, you get to work with the new lenders that have more to offer.
Your credit score gives you a chance to refinance
Sometimes, after graduating and getting a steady income, after analyzing your current student loan payments, you find they are a bit high as compared to when you refinance. In most cases, for you to qualify for refinancing, your credit score has to be high for reasonable rates. If not, you’ll need a cosigner with a high credit score.
Refinancing gives you a chance to get better rates due to your high credit score.
Releases the cosigner
When you are applying for a student loan, you are needed cosigners so that your loan can be approved. If you delay paying the loan the cosigners are approached, and to some extent, they can be forced to pay your loan. This can affect your relationship as no one would like to pa a loan for another person.
To make sure your relationship with your co signer’s is maintained, you can refinance your loan. This way you get to pay your loan with better terms and maintain a good relationship with the person who had agreed to cosign for you. But all this is dependent on if you have a good credit score.
Helps you consolidate
Sometimes, you may have a couple of student loans with each having its own repayment date. It can be quite confusing, and you may even miss some payments, which affects your credit score significantly. Refinancing gives you a chance to consolidate all these loans and make the payment easier.
You can choose your repayment period
With refinancing, you get to choose a repayment period that’d be comfortable for you. The term is usually from 5 to 20 years.
You get to pay the loan at your term. You can choose to pay the loan in a shorter period depending on your income. That way, the loan acquires less interest. One can also choose to pay less amount per month and take more years. It all depends on what works for you.
With refinancing you get to save some money. An example with your student loan interest was 6% and paid in 20 years, but after refinancing, you can choose to pay in 10 years with slightly higher interest, but after calculation, you end up saving money.
All this depends on your credit score. If it is high, you can qualify for a lower interest rate with a shorter term or the same term as the previous one.
With a refinancing, you don’t get to enjoy federal benefits. An example is when all the student loans are forgiven. If you refinance your loan, there’s no such provision you will have to pay it in full.
When you have refinanced your student loan, you don’t get to enjoy the grace period offered by student loans. As soon as get approved by the new lender, you start paying the loan immediately.
Pay more and for long
With refinancing you get to pay more money and for a more extended period. This happens when you get to pay less interest per month, which could take a more extended period. That way your loan will acquire more interest, and by the time you finish paying, you’ll have spent more money.
Also, you may refinance and choose a variable rate, the rate can go up at some point, and you will be forced to pay more amounts in the long run. However, the rates can be lower, and you end up paying fewer amounts.
Refinancing your loan can either do good or bad to your finances. If you have private student loans, refinancing the loan could be a good idea. With the right lenders and reasonable repayment terms you may end up saving a lot of cash that can help in other areas
The idea is to look at the pros and cons before making the final decision to refinance or not.