Student loan refinancing can be a powerful tool for people with student debt. It’s not right for everyone, but if you’re considering it, here are a few pros and cons of refinancing student loans:
Student Loan Refinancing can help you save money
Refinancing your student loans is a great way to save money on interest. By refinancing, you are consolidating all of your federal and private student loans into one loan with a new lender. The key benefit here is that the new lender can offer you a lower rate of interest than what you currently have, which could result in thousands of dollars in savings over time.
Can help you simplify your finances
Student loan refinancing is a great way to simplify your finances.
You can change repayment terms and interest rates when you consolidate multiple student loans into one loan. You can also change the duration of repayment periods, which normally last 10 years for federal loans and 25 years for private ones. This allows you to pay off your debt faster than other student loans.
As per SoFi advisors, “One of the pros of refinancing such loans is combining your existing loans all into one.”
Can help you change repayment terms
Refinancing may be your answer if you’re struggling to make your student loan payments. However, when it comes to refinancing loans, there are several ways that you can benefit from this process.
- You can change repayment terms.
- You can change the interest rate.
- You can also change the loan length if you want to pay off the loan quicker or slower than before.
Can hurt your credit score
It’s important to know how refinance loans can impact your credit score. The higher the interest rate you’re paying on your student loan, the greater your risk of a lower score. You may need something else if you have excellent credit and are looking for a lower rate while keeping an unblemished record. It’s also important to keep in mind that many lenders will consider all the debts on your record when determining your creditworthiness, including auto loans and mortgages.
If this happens to you and it seems unfair (because it is), some steps can help mitigate these issues:
- Paying off other debts before refinancing could potentially improve your overall profile.
- Making payments as scheduled will keep things running smoothly with no late payments or defaults.
Student Loan Refinancing may not be right for everyone
- You may not qualify for a lower interest rate.
- You may have to pay a fee to refinance.
- You may not be able to change your repayment terms. If you’re already paying your student loans off, refinancing could mean that the new loan term is longer and, therefore, more expensive over time than the original loan’s term—if you can even do this at all (see below).
These drawbacks can be worth it if you find yourself in financial trouble later on in life or if your career takes off unexpectedly and you want more flexibility with payments. But before rushing into this decision, consider how much debt-free happiness costs:
Student Loan Refinancing may be right for some people, but it’s only suitable for some. So it’s important to consider whether you want to refinance your student loans and, if so, how much the savings will be worth.