Frequently Asked Questions About Refinancing Student Loans
Refinancing student loans can be an excellent way for an individual to manage his/her loan repayment plan. Bear in mind, that it can be confusing to refinance loans. It can lead to financial problems eventually (especially if the affected individual doesn't have a good personal budget) if a borrower fails to make the right choices when applying for refinancing. We have compiled a list of frequently asked questions regarding refinancing loans. Let us consider some of them below.
Common Questions Raised Regarding Refinance Loans
1. What is the new term of the refinanced loan?
Banks offer varying terms when it comes to refinancing your student loans. A term is usually expected run for the number of years in which you are required to repay your loan. Most banks usually offer a 5, 10, 15, and/or 20 year repayment plan. The biggest consideration yet is how much of the loan can you afford to pay presently, and how much interest you will accrue during the repayment period.
2. Does the new loan have a fixed or variable interest rate?
Student loans usually have either fixed or variable interest rates. Refinancing your student loans, will allow you to convert a fixed interest rate to a variable interest rate or vice versa. The fixed interest rates usually appear less risky, while the variable interest rate loans may fluctuate from time to time due to economic conditions. As a result of the 2008 recession, the interest rates available over the past four years have been low. However, if the affected economy improves, the interest rates will likely rise over time (this makes variable interest rate loans less favorable compared to fixed rate loans).
With the current economic situation, fixed rate student loans have a better interest rate meaning, that you may end up paying more (as interest) on the long term.
3. What are the repayment options?
When does the repayment plan begin? How will you arrange your personal budget to meet up? What will your monthly payments be? What fees can missing a payment result in? Is a 0.25% interest rate reduction available for an ACH automatic payment withdrawal?
4. Is there any origination fee?
Several banks charge student loan origination fees up to about 2% of the total sum you may request to be refinanced. Take for example, deciding to refinance the sum of $60,000 in student loans, will make you pay a $600 fee (that is 1% as origination fee). The origination fee is typically summed with the loan amount and you won't have to pay this sum upfront.
5. Do you need a cosigner?
If you have a very low credit score or income, the bank may require a cosigner so as to insure your loan in case of default. Alternatively, some lenders may offer cosigner release (this removes any existing cosigners from student loans). This may help free some revolving credit for your cosigner and allow him/her to make any other purchases like a mortgage or an auto loan.
Refinancing your student loan means that you will work with the bank through the next 5-20 years.