The coronavirus pandemic has caused unprecedented economic chaos, leaving millions of Americans unemployed or facing reduced hours and worrying far more about their financial futures.
In the midst of the current economic volatility, you might be interested in cutting your costs. If you have student loans, refinancing might be an easy way to do it. Refinancing of private student loans has little downside, as you won’t have to forgo any of the benefits of federal loans – and you may be able to significantly lower your rate with a refinance loan, as interest rates are currently near historic lows.
If you want to try lowering the interest rate on your student loan to give yourself more leeway in your monthly budget, visit the Credible online marketplace. Compare student rates and lenders in minutes.
How to lower the interest rate on your student loan
Here are three steps you should take to try and lower your student loan interest rate and leave more money in your pocket.
- Refinance your student loans
- Shop and Compare Student Lenders
- Improve Your Credit Score and Debt-to-Income Ratio
1. Refinance your student loans
when you have private student loans, you cannot change your interest rate or repayment terms unless you refinance. Refinancing is getting a new loan from another lender and using it to pay off the old one.
Since interest rates are very low right now, there is a good chance that you can refinance your student loan at a lower rate than what you are paying now. See how much you could save today by refinancing. Only enter your loan amount and estimated credit score to see rates and offers from up to 10 student lenders.
According to Credible data on average student loan refinance rates, the 10-year average fixed rate refinance loan had an interest rate of just 4.08% in October. This is a substantial drop from last year’s average of 4.76%. The average 5-year variable interest rate is also down to 3.26% from an average of 3.49% last year.
If you find that you can lower your costs with a refinance loan, there is no downside to going through the process of refinancing for private loans. However, you probably won’t want to refinance federal loans even if you could lower your rate. To do this, you will have to forgo the possibility of a loan forgiveness; would have less flexibility in repayment and would no longer be eligible for income-based repayment plans.
Again, Credible can show you the interest rates you may be entitled to if you are refinancing your student loan. Plus, use Credible’s online student loan refinance calculator to see how much you could potentially save.
2. Shop and Compare Student Lenders
Unlike federal student loan rates, which are the same for all borrowers, rates can vary widely from one private student loan refinance lender to another.
Since your refinancing goal is to save as much money as possible, you’ll want to shop around to find which lender offers you the best loan terms. You can visit Credible to compare the rates of several lenders at once to see which one offers you the most competitive rate.
3. Improve Your Credit Score and Debt-to-Income Ratio
Student loan refinancing loans also differ from federal student loans in that the interest rate you are offered depends on your financial credentials. Borrowers who appear to be at lower risk of default will be offered a loan at a more competitive rate.
Two of the key things lenders look at when assessing the risk of giving you a loan are:
- Debt-to-income ratio
- Credit score
Your credit rating is a measure of your degree of responsibility for paying your bills in the past, while your debt-to-income ratio compares debt payments to income. The higher your credit score, the higher your debt to income ratio, the more lenders are confident that you will repay your loan. This translates into lower rates.
The good news is pay off your debt can help you improve both your debt ratio and your credit rating, so you can become a more qualified borrower and increase your chances of getting a loan at today’s historically low rates. You can also consider having someone with good credit and high income relative to their debt to act as a co-signer for you.
By shopping around with several lenders, comparing rates, and improving your financial credentials before you apply, you should hopefully be able to qualify for a student loan refinance loan at a very low rate. This can save you money over time, as well as give you more money in your pocket each month by dropping your student loan debt payments.
If you are ready to explore your savings possibilities, visit Credible today to get prequalified student loan refinance rates without affecting your credit score.