Do this if you have already refinanced your student loans

Student loan refinance is often the best way to reduce your payment, lower overall loan costs, and pay off your debt faster. If you’ve already refinanced, you have one way to improve your loan even further: Refinance again.

If your goals have changed since you first refinanced, or you want to reach those goals faster, refinancing student loans can help. Depending on when you refinanced, your interest rate could be 6% or more. Refinancing again could lower that rate, saving you money now and in the long term.

For example, if you owe $27,000 at 6% interest, refinancing to 3% would reduce your monthly payments by about $39 and your total interest expense by $4,686 assuming a 10-year repayment plan.

And with student loan refinance rates set to increase, now might be your last chance to get a good deal. Here’s what to consider when planning your next student loan refinance.

What are your financial goals?

Whether you decide to refinance again and what term you choose should depend on your financial goals.

If you need more cash each month, extending your term at a lower interest rate may be for the best. This may also be the better route if you need to improve your debt-to-income ratio to qualify for another line of credit, such as a mortgage.

If you want to pay off your student loans faster or reduce the total amount you have to pay, the shortest term is the best choice. This can also be the way to go if your primary goal is to get the lowest interest rate. Lenders will typically reserve their best rate offers for those who choose the shortest terms available.

Regardless of which route you choose, you should only refinance if you can get a lower interest rate than you currently have. However, don’t be discouraged if you don’t get the lowest advertised price. Lenders reserve their lowest available interest rate for those with the best financial profiles. You may also have additional criteria to qualify, such as: B. the degree. According to data from the 2021 NerdWallet survey, only about 18% of borrowers are offered the lowest advertised interest rate for student loan refinancing.

The beauty of multiple refinancing is that you can continue to get a better interest rate as your financial situation improves.

What’s the catch?

Just as there is no real catch in refinancing, there is no real catch in re-financing. You can refinance as many times as you qualify. There are no additional fees or penalties for doing so.

The only potential downside to refinancing is that lenders may pull your loan before final approval. This tough credit check can lower your credit score by up to five points. This drop is temporary, however, and assuming everything else is fine with your credit profile, your score should recover within a few months.

It’s also important to pre-qualify with multiple lenders to ensure you get the best deal and the one that best suits your financial goals. Pre-qualify with lenders who will make you an offer without hurting your credit score.

However, as you approach your payout date, your only option may be to extend your loan term. Several lenders offer repayment terms as short as five years, but few offer shorter terms.

The good thing about extending your term when you’re about to pay out is that your payment will likely be a lot less. The bad news is that your overall costs are likely to increase.

Let’s say you have $16,000 and three years left on your 4% refinanced student loan. If you refinance again and get a 2% interest rate but extend to a 10-year term, your payment goes from $472 a month to about $147 a month — a $325 difference. However, extending the loan term will cost you almost $1,000 more overall because of interest.

But if you have $64,000 and eight years at 4% interest, you could refinance 10 years at 2% interest and still save money: $191 a month and $4,224 total. If you refinance for a shorter term, say five years, you’ll save a lot more overall, but your monthly payments will increase. You’ll pay about $342 more each month and save a total of $7,584.

More from NerdWallet

Cecilia Clark writes for NerdWallet. Email: [email protected].

The article Do this if you’ve already refinanced your student loans originally appeared on NerdWallet.

Comments are closed.