When you’re faced with the inability to pay back your student loans, you may wonder what methods are at your disposal to help you out. One such method may be to refinance the loan. However, doing this means really looking into the situation. After all, the method isn’t right for everybody, and you don’t want to be in a worst circumstance than you already are.
Ask yourself the seven questions below to determine if refinancing is best for you.
What’s The End Goal?
Before refinancing, you should know what you want. Do you want lower the interests by paying the debt off faster? Do you want to eliminate certain terms and conditions from the loan? Do you want to lower your monthly payments?
What Are Your Loan Types?
Are your loans federal, private or both? Federal loans provide an array of protections such as income-based repayment plans and loan forgiveness. If you refinance, you may lose some of those federal protections.
What Monthly Payment Do You Want?
No matter what the objective is, you need to know how much money you can comfortably pay back each month. It should not be more than 10 percent of the household discretionary income.
What Is Your Credit Like?
If you’re going to refinance, be sure your credit score is above 700. You should also have a steady income and very little other debt.
What’s The Current Interest Rate Like Compared To The Options?
Refinancing only makes sense when you attain a lower interest rate. Fixed rates for undergraduates run around 4.45 percent and 6 percent for graduates. Older student loans may have differing rates. Higher interest rates are seen in private student loans. Your creditworthiness will determine what rates you will have. The better your financial situation, the more effective refinancing can be.
What Is The Total Payoff Amount?
The total payoff amount if not the original loan amount; it’s the remaining loan balance and the interest added to it. This is important to remember when looking at different loan offers.
How Does The Lender’s Track Record and Terms Look?
Private lenders entice customers with various incentives but look closely at their terms and what their history is like. Review their Better Business Bureau profile to get these answers.