Source: Pixabay user jarmoluk.
When you’re looking to refinance your student loans, you’ll likely be wondering about the terms of the refinance. The process can feel a bit messy, and it’s the kind of thing that you’d rather not have to do very often if you can help it. How do you even compare student loan refinance offers?
Plus, a big reason to refinance your student loans in the first place is to save money, so you’ll want to make sure that you’re getting the best deal possible on the terms of your refinance.
There are a number of factors to consider when you compare student loan refinance offers and choose the right one. In this article, you’ll learn about the major considerations that should come into play during your decision.
How to Compare Student Loan Refinance Interest Rates
When comparing rates and terms of your student loan refinance, you’ll likely want to look at a number of lenders in order to determine if you’re receiving a competitive rate.
Generally, you can just go to each lender’s website to see what their listed rates are.
You may need to submit an inquiry in order to get a customized estimate of what rate you’ll receive. Just be sure that this will be treated as a “soft” inquiry on your credit report rather than a hard inquiry that can negatively impact your credit score.
Types of Student Loan Lenders
There are three main sources for student loan refinance:
- Student loan specific lenders
- SoFi
- Earnest
- Not-for-profit lenders
- Credit unions
- State student loan agencies
- Large/traditional banking institutions
- Discover
- Sallie Mae
Where To Look for the Best Rates
Many private lenders can and will offer the lowest rates, although not all lenders offer the same rates and terms.
Often times, credit unions also offer competitive rates for student loan refinance, while larger traditional banking institutions tend to have rates that are higher than these other lenders.
With online markets, there are lenders like SoFi that allow peer-to-peer style lending and other non-traditional lenders that specialize in student loans. These companies often offer some of the best terms and rates in the market.
You can also use various student loan marketplaces that help you compare rates across various lenders such as:
- Credible
- LendKey
Fixed-Rate vs Variable Rate Loans
One thing to consider carefully is whether you refinance your student loans at a fixed rate or a variable rate.
Many times, lenders will advertise variable rates as their lowest available rates. These can possibly save you money, but be aware that the rate is subject to change over time, versus a fixed-rate loan, which may have a higher rate overall, but will stay the same over the life of the loan (or until refinanced).
Without getting too technical, variable rates are generally set based on the LIBOR or Prime Index rates (sort of like a global standard for interest rates). So, before committing to a variable-rate loan, you may want to see where these rates currently are and how that compares historically.
If you accept a variable-rate refinance loan while these rates are at historic lows, then there is a pretty good chance that your interest rate will rise over the life of the loan,
Just remember that there is always some risk associated with variable rates.
Choosing the Right Repayment Schedule
Five years? Ten years? Twenty years?
Choosing the right repayment schedule can make a huge difference in your student loan payments. Not only will it determine your monthly payment (longer terms mean lower monthly payment), but it will also determine how much interest you pay over the life of your loan (shorter terms means you end up paying less in interest.)
In order for you to make the right choice, you’ll probably want to consider these questions:
- How much can I afford to pay monthly?
- How much am I comfortable with paying over the life of the loan?
- Can a shorter-term earn you better interest to reduce your monthly payment?
Also, keep in mind that you can refinance your loans again in the future. So, if you know that your circumstances may change, for example, right now you can’t afford a huge monthly payment, but in the future you’ll have a higher salary and be able to afford more and pay off your loans more quickly, then you may want to consider a long-term strategy that involves multiple refinance steps.
Other Factors to Consider
Refinancing your student loans isn’t all dollars and cents. Aside from payments and interest rates, there are other factors to take into account when comparing refinance offers. These range from fringe benefits of choosing one lender to another, to how your credit inquiry will appear on your credit history.
1. Impact on credit score
Applying for loans and even inquiring about rates can sometimes negatively impact your credit score, so be sure that the lenders you’re considering will only run a “soft” credit check, which won’t appear on your credit history.
2. Loan program benefits
Can you save .25% interest by setting up auto-pay for your student loan payments? That’s a benefit.
Many student lenders offer various perks and benefits that borrowers can qualify for. Be sure to fully research these options and include them in your consideration. An interest decrease of .25% might not sound like a lot, but over time it adds up!
3. Loan protections
Some lenders offer protection like unemployment insurance (in case you become unemployed and cannot make your student loan payments) or deferral/forbearance options for borrowers who need to miss some payments in order to catch up financially.
These may not seem pertinent to you at the time of your refinance, but they can be incredibly valuable if something unexpected happens or if you’re already stretched pretty thin and an unexpected expense causes you to miss a payment in the future.
