Another potential upside of refinancing is extending your repayment period. Even if you don’t qualify for a more competitive interest rate, your monthly payment will likely be more affordable since you’re stretching the balance out over a longer period.
However, this approach has downsides, as the lender will have more time to collect interest from you. In exchange for lower monthly payments, you can expect higher borrowing costs over time.
Calculate the costs of a longer term
Input your loan information into our student loan refinance calculator to help evaluate the costs and benefits of consolidating your education debt with an extended repayment term.
Whether you have a federal or private student loan, refinancing to change lenders may allow you to take advantage of special incentives or bonus offers (or similarly, forfeit perks you enjoy from your current lenders). However, refinancing federal student loans with a private lender means permanently losing valuable benefits, like access to income-driven repayment plans and government-exclusive forgiveness programs. The advantages of refinancing should outweigh the costs for you.
Refinancing is an ideal way to streamline the repayment process if you’re struggling to manage your student loans. By consolidating your loans into one refinanced loan, you’ll have a single monthly payment instead of juggling several payment amounts and due dates each month. Plus, you can avoid late payment penalties, missed payments and adverse credit reporting by enrolling in automatic payments with the new lender.
Refinancing student loans can be a great way to save money on your educational debt. Yet many private lenders require a minimum credit score in the mid-to-high 600s to refinance your student loans. Try these tips if you’re worried your score won’t reach this threshold.
Choosing to add a cosigner — such as a parent, sibling or spouse — on your loan application might help you qualify to refinance your student loans when you have credit issues. Of course, your cosigner needs good credit (or better) for this approach to work. If your cosigner’s credit is good enough, they might help you secure a lower rate and better loan terms.
On the negative side, cosigning could backfire for your loved one, as it risks their credit reports and scores. If you can’t repay your refinanced student loan as promised, your cosigner’s credit will suffer from late payments or loan default.
A cosigner is liable for the debt — just as much as if they were the sole borrower. Even if you always pay on time, the cosigned student loan on your loved one’s credit reports might make it difficult for them to borrow again in the future.
Splash Financial and PenFed Credit Union are among select lenders that might allow you and your spouse to consolidate and refinance your education debt into a single loan. Then you could repay this single loan together, side by side. This arrangement could help you qualify for refinancing with bad credit — assuming that your spouse has stronger credit than you do.
Just be cognizant of potential pitfalls: If you and your loved one refinance federal loans, you’ll both lose those government-exclusive protections. Plus, if you end up separating or divorcing in the future, it can be more difficult to disentangle a jointly refinanced student loan.
Credit scores aren’t the only detail that lenders consider when you apply for a loan. But they’re certainly among the most important factors.
Improving your credit score before you apply to refinance your student loans is smart. Here are some potential ways to give your credit score a boost:
Anytime you need to borrow money, shopping around for the best deal is a good idea. Comparing offers from multiple lenders has the potential to save you a significant amount of money over the life of your loan.
Some private lenders will allow you to confirm your eligibility and check your potential interest rate with only a soft credit inquiry. This loan preapproval process is great because it lets you compare multiple refinancing options without any potential credit score damage. Each additional hard inquiry can drop your score by up to five points, according to FICO, so it’s ideal to only formally apply for refinancing after you’ve narrowed down to your preferred lender.
Also, seek out lenders that might specialize in serving distressed borrowers. YREFY, for example, was founded in 2017 to refinance loans for private loan borrowers who are seriously delinquent or in default, and therefore have lower credit scores.
Jack Wallace, a director at YREFY, tells Bankrate that his company offers single-digit interest rates and terms spanning two to 20 years to borrowers across the credit spectrum who are motivated to repay their balance. Their customers’ average interest rate is about 4 percent, Wallace adds.
Lenders also consider your debt-to-income ratio (DTI ratio), among other refinancing eligibility requirements. DTI compares the income you earn each month (pre-tax) versus your total monthly debt payments.
Lenders will hesitate to loan you more when you owe too much money compared to your income. But if you can improve your cash flow — by paying down debt or earning more money — you may be in a better position to qualify for student loan refinancing.
Student loan refinancing isn’t the right fit for everyone. If bad credit keeps you from refinancing or prevents you from getting a lower interest rate than you’re currently paying, an alternative approach may be best. Some options include:
If you cannot find a willing cosigner or a lender that will work with your existing credit, it may be best to improve your credit score and revisit refinancing down the line. Even if you qualify to refinance now, remember that it’s not always the best financial move. Unless you’re ready to learn about the steps of student loan refinancing, you might first consider credit-improvement advice.
