Refinancing your student loan means replacing an older loan with a new one that would pay off the remaining amount. It often reduces interest rates and gives you longer repayment timelines.
If you are one of those people who want to save some money every month but weren’t able to do so because of high-interest rates, then you can opt for a student loan refinance. You can check it via a student loan refinancing calculator to help you check the possible rates you have to pay when you refinance.
Mentioned below are the pros and cons of refinancing your student loans.
PROS
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Lower Interest Rates
Interest rates depend upon your credit score, if you are eligible for lower interest rates then you can pay lower amounts in repayment which can make monthly repayments a bit easier than before and can help you save money. Lower interest rates are by far the most significant benefit when it comes to refinancing student loans.
Alter Payment Plan
With lower interest rates, you can alter your payment plan. You can choose to pay off the amount with more time. Whether you want to pay off your amount in a short amount of time or prefer a longer period, you have the freedom to choose. Take note that opting for a shorter period will require you to pay a higher monthly rate.
Simplified Loan
If you have several loans running, refinancing would simplify the several loans or group them into one. That way, you do not have to pay heavy sums every month to different lenders; instead, you can streamline your loan and pay for one, as the other loans would already be replaced by the new loan.
Lower Monthly Repayment
Lower interest rates in a longer period in repaying the loan would also mean lower monthly repayment. It can boost up your finances, as the money saved from the lower interest repayments in comparison to higher interest rates would allow you to go easy on your monthly expenditure and can make space for other monthly expenses.
CONS
Protection
Refinancing would mean giving up your protection that comes along with federal loans such as income-driven repayment plans or interest freeze or federal student loan forgiveness. You will lose these protections once you switch to a private lender.
Good Credit-Score
Not everyone would be eligible for refinancing or lower interest rates, as mentioned earlier if you want to refinance or be eligible for lower interest rates you need to have a good credit score.
Timeline
Refinancing would increase your timeline to pay off the loan. It is both a pro and con, con in the sense that you would be paying off the debt for a longer period. You will be repaying monthly for a significant period of your life.
In determining whether a student loan refinance will work for you, calculate the amount of money you will save in total. If this new loan will save you money, then go for it. Make sure to consult experts and stay cautious on making changes to your loans and know if there are hidden charges that may cost you more. Remember that altering your loan should make things more convenient for you instead of adding hassle to your monthly priorities.