Top Benefits of Refinancing Your Education Loan
These days, refinancing education loans
has become a hot discussion topic among the masses. So, what exactly does refinancing mean? Well, it is an option that allows you to obtain a new loan and pay off all other existing loans using it. Likewise, any benefits, loan terms, or rates that you were incurring on the existing loans go away. Instead, you take on the benefits and terms of the new refinance loan. People who opt for refinancing, look to reduce the total repayment amount and monthly installments on their education loans
. So, if you too are wondering whether refinancing makes sense for you, here are some benefits to help make up your mind.
Refinancing Helps Reduce the Rates of Private Education Loans
Usually, private education loans
offer interest rates of 8, 9 or even 10 percent. On the other hand, federal loans offer around 7.9 to 8.5 percent rate of interest. While consolidating your education loans under federal loan programs might help reduce the monthly payments, refinancing can help you obtain both reduced monthly payments and interest rates. Subsequently, you could potentially save a significant amount of loan money in interest costs and pay off the loan that much faster.
Refinance Student Loans to Improve Your Credit
Most loan programs nowadays offer credit-based pricing and therefore, require a credit check. Therefore, if you’re a defaulter of any previous loans or have been late in paying your bills, your credit score goes down. Naturally, you will find it difficult obtaining the best possible interest rates while applying for an education loan refinance
. However, if you maintain regularity in your monthly payments and depict a healthy credit score, you can get decent rates on refinancing. Subsequently, you can use that to pay off all existing loans before time and improve your credit score significantly.
You Can Shift Responsibility by Refinancing
Applying for a loan for higher education
usually requires you to get a cosigner or become one. Therefore, it is better to shift the primary responsibility of the loan, away from yourself (if you are the cosigner.) While you have the option to do that using a cosigner release program, even a single missed or late payment could disqualify you. Here, refinancing
is a better option as it allows you to get a release from the obligation while the other party refinances the loan (with or without another cosigner) under their name. Eventually, you won’t have to be responsible for the loan anymore.
Refinancing Helps Simplify Life
If you have student loans with multiple lenders (private or federal), refinancing can help reduce the number of bills that are up for payment. However, you must remember to ask for the lowest possible rate of interest while finalizing a refinance loan because a lesser number of bills doesn’t equate with a higher interest rate.
Refinancing might be beneficial for some borrowers while devastating for others. There is no doubt that refinancing avails a number of benefits including reduced interest rates and monthly payments. However, refinancing has its own set of terms and conditions that may or may not be conducive to your current financial condition. Therefore, it is better to tread with caution and evaluate your options beforehand, and then only consider refinancing because there’s no turning back on this path.
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