Student loan refinancing is a popular term among people with an existing loan and heavy instalments. They think of it as a sure-shot alternative to reduce the financial stress and overall cost of the loan. However, there are some aspects you need to consider before starting the search for a student loan refinance.
These are the common aspects that include motive, cost, and qualification for the loan. Sometimes, the foreclosure and other charges take away the financial benefit of the lower interest rates. Therefore, consider the aspects mentioned in the list below before you refinance your student loan –
What is Student Loan Refinancing?
Refinancing a student loan is the process of paying the existing loan with a new loan approved by a private lender. You are applying for a new loan with different interest rate and terms to ease the repayment. The process remains almost the same as the other online loans in Ireland.
You need to fill the application form; the lender will check your eligibility and approve the request. They will offer some interest rates and terms based on your profile. In most cases, the profile gets better after college education because of increased income.
However, the foreclosure also depends on the agreement between you and the existing lender. They may not approve the request or ask for some unreasonable fee for early repayment. In most cases, it is not an issue since the lower interest rates can significantly reduce the overall cost of the loan.
What are the Savings Associated with the Refinancing?
Lenders offer better terms with refinancing because of the improved creditworthiness and market scenario. Your repayment ability has increased because of the new job that makes the profile less risky. Moreover, student loans before graduation have the same interest loans for every profile.
You will save on the monthly instalments if the same tenure is selected. Lower interest rates also mean the overall cost with the same term is less. Many people select a shorter term with the same instalment to get debt-free early.
What is the Qualification for the Student Loan Refinancing?
Qualification for a student loan refinancing includes a good enough credit history and regular income. Lenders will prioritise your application if the credit history has no missed payments or defaults for the past 5 years. The other qualification includes residency and a minimum age of 18 years.
Some lenders will not consider the credit history to approve the loan request. For them, the present financial condition is more important than some previous emergencies or mismanagement. However, a soft enquiry will still be conducted to assess the affordability of the loan.
What is the Goal to Refinance the Student Loan?
You must have an objective to apply for student loan refinancing. These include a shorter repayment term or lower interest rates. The primary benefit includes lower cost and manageable instalments.
For some borrowers, the switch to fixed interest rates from flexible rates is why they spend time applying for refinancing. The flexible rates are heavily dependent on the market, with a considerable difference between the two options. You will find a better offer from the lender once the goal for refinancing is clear.
How Much Can You Afford with the New Loan?
Affordability is an important factor while deciding the refinance options. You are going through the process to make the loan affordable. However, the definition is different for people based on their income and lifestyle.
Borrowers apply for refinancing to make the instalments manageable. You can increase the loan tenure with the same interest rates to reduce the terms. Or find a lender with reduced interest rates and the same tenure.
Others find the lower overall cost of the loan affordable irrespective of the monthly instalments. They can afford to pay more to achieve financial freedom early and pay less to the lender. Reduced terms with the same or lower interest rates will help make the loan more affordable for them.
In the end, your credit profile and income will determine the refinance offers from the lenders. Therefore, try not to take too many loans and never miss the payments to avoid any negative mark on credit history. You can also start a side hustle to improve your chances of approval and make the repayment more affordable.