Are you about to graduate? Are you prepared to unleash a massive burden from your shoulders? Do you want to start your career in a blissful and composed manner? If so, it’s time to refinance your study alias student loans! Do you know that approved refinance applications will help you to save several tens of thousands of dollars? And, in amarket where every dollar makes a massive difference, you should be prepared to refinance student loans as quickly as possible. Refinancing student loans is a tricky process, which involves many stages and steps. You should navigate through each stage with lots of care and concern for a successful refinancing experience.
The difference between refinancing and consolidation
Refinancing must not be confused with loan consolidation. According to experts, consolidation is a method used to refinance loans. It is not refinancing itself. When refinancing a loan, the lender will reimburse your existing loan and offer you a brand new loan. The new loan will have a low interest rate and boast better features. However, the new interest will depend on your current credit score. If you have a good credit score, the interest rates will be very low and affordable. And, you can refinance both private and federal loans.
A quick example to demonstrate refinancing
Here is a simple example to show how refinancing works. Imagine, your student loan has a total balance of 100,000 USD and your current interest is around 6.8%. If you get a new loan, with an interest rate of 5.5%, you will save at least 8,000 USD during the loan’s complete period. To be more precise, you will repay only 1,080 USD every month, which is 100 USD lesser than what would have paid. Reduced monthly payments will help you to retain your quality of life without any compromises. And, this is why most borrowers refinance their student loans at the right hour.
It’s better now than never!
Never wait to refinance your student loans towards the end. In fact, you must not wait even several months after the reimbursement period. This is because you will not save lots of cash once repayment begins. According to experts, as the reimbursement period begins, you would have repaid a crucial amount of the interest. Always remember that the interest will be more than the principal. Thus, to save more money, you should reduce your loan’s rate of interest. Any change other than this will not safeguard your hard earned money. For example, during a 10-year student loan, you will pay nearly 50% of the interest in the first 3-years. Of course, extending the reimbursement period will reduce the monthly repayments. Nevertheless, this will not cut down on how much you repay on the whole.
A Quick step by step Look into refinancing
So, how do you refinance student loans? Here is a step by step procedure on how refinancing can be done! First of all, you should check if your current lender has any student refinancing options. In case the lender offers refinancing, you should consider them as your first and most viable option.
Two Famous Refinancing Companies – SoFi and Common Bond
Unfortunately, very few organizations refinance both private loans and federal loans. This includes companies like SoFi. Companies like SoFi have special schemes for young borrowers. For instance, they would deposit 100 USD into your account once the loan application gets processed successfully. This is a simple token to start savings worth several thousand dollars. Another special refinancing option for students who have completed a MBA program would be Common Bond.
Understand the Lender’s Real Terms and Conditions!
As you finalize on a lender alias refinancer, you must read through their terms and conditions. Always remember that refinancing is governed by a standard set of policies. These policies will be different from conventional student loans. If you are happy with the refinancer’s terms, you should scan through their application procedure. Sometimes, this can be a gruelling step that revolves around many different documents and applications.
Putting together the right documents! A very crucial step!
You should gather details like credit reports, income statements, identification proof and previous loan documents. Some companies will ask for your billing history, in order to check if you demonstrate healthy signs of repayment. Never approach a refinancer if your income and financial status is inconsistent. Bad credit scores and poor reimbursement histories will reduce your chances of making a successful refinancing application.
The real science behind refinancing student loans!
When you refinance student loans, you will be prone to witness many risks. Firstly, you will receive a new loan with new interest rates. Thus, the repayment cycle will begin once again. Refinancing will reset the previous reimbursement months. Hence, you may end up paying a loan for a few more months! The duration will depend on how the lender sees your application. To reduce the total duration, you must pay a bigger interest rate every month. This might seem like a burden in the beginning. However, as time passes, you will understand the power of higher interest rates and reduced loan periods. Experts term this as pre-payment. This is where you pay a bigger sum in the initial years and opt for a quicker pay-off.
Should you convert Federal Loans to private loans? The pros and cons!
If you are ought to convert your federal loan into a private loan, you will steer away from some benefits offered by the federal plan. For instance, options like loan forgiveness and income based reimbursement will not be present in private loan plans. Moreover, you will not be allowed to defer private loans if you become unemployed or financially unstable.
The ultimate Bottom Line! Refinance at the right hour and the right scheme!
On the whole, weigh your benefits and drawbacks before refinancing student loans! The ultimate outcomes will depend on your situation, requirements and fiscal background. Never refinance student loans if the risks outweigh the benefits. Opt for refinancing only when you can save thousands of dollars in an effortless manner.