How to Get the Best Interest Rate When Refinancing Student Loans

Refinancing student loans allows you to restructure your payment options for a more beneficial loan arrangement. If you have a federal loan, refinancing will be fairly easy. Private loans are harder to refinance because the lenders will be less willing to take a lower profit through the renegotiation. One possible goal of refinancing loans is to achieve a lower interest rate. If this is your ultimate agenda, then consider these tactics to secure the low rate option.

Provide High Monthly Payments


Whether you are refinancing an existing loan or taking a new loan, high monthly payments is usually one key to low interest rates. With high payments, the lender makes back the loan sum faster. They are then assuming less risk in issuing the loan, and they will reward this lower risk profile with lower interest rates. If you have experienced a change in your ability to pay and can afford higher monthly payments, then use this option to get a lower interest rate on your refinanced loan.

Opt for a Short Loan Term


High monthly payments and short loan terms go hand in hand. You can shorten the total life of your loan by refinancing the remaining sum to be paid off faster. For example, if you originally agreed to repay a $15,000 loan by paying $125 a month for 10 years, you will have paid off $3,000 after 2 years. If you discover you can afford more, try refinancing the remaining $12,000 to a 4 year loan term at $250 each month. The funds you owe due to interest will decrease, and you will ultimately save money. You will also get out of debt faster so you can assume new debts such as a mortgage or graduate student loan.

Seek Third Party Refinance


If you have a private student loan, it may be necessary to refinance through a third party to get the best rates. Private lenders do not want to lower your rates because they will lose money in the process. In order to get the best refinance quote, find a new lender willing to pay off your existing student loans. In the example above, the new lender will pay off the $12,000 remaining plus any additional fees. You can then set new terms with the lender on the $12,000 loan in order to save money overall on the life of the loan.

Pay Down a Large Sum


You may receive a lump sum of cash at some point after graduation. This can happen if you have a trust fund, inheritance, signing bonus or other bonus at your job. You can apply this large sum to a portion of your student loan in order to reduce the total sum you owe. In doing so, you will have to totally refinance the loan. Take the same initial $15,000 loan, and imagine you have received $5,000 as a graduation gift from a family member. You can offer to pay the lender this $5,000 and then have only $10,000 remaining on the loan over the same period of time. Your interest rate will significantly decrease.


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