The cost of higher education has been on the rise for decades. And if you’ve been paying off your student loans since graduating, chances are that you’re still making payments today. That being said, refinancing your student loan debt might be a good idea if it can save you money and improve your cash flow in the long run. Here’s why:
Lower interest rate
You will need to apply for a new loan to get a lower interest rate. You can do this by going through your student loan servicer. They will give you all the information about what steps you need to take in order to qualify and how much money they are willing to lend you based on your current income and credit history.
If everything goes according to plan with your application, then the interest rate on your student loans should drop significantly. It might even be less than half of what it was before! How does refinancing student loans work? The benefit of this is that it will mean lower monthly payments because less money will be taken out every month towards paying back the loan altogether.
Shorter loan term
The shorter the loan term, the lower your monthly payments. The shorter the loan term, the higher your interest rate. The shorter the loan term, the less you pay in interest.
Fixed or variable interest rates
There are two types of student loan interest rates: fixed and variable. Fixed-rate loans have a set monthly payment, but the amount you pay in interest can vary monthly. Variable-rate loans have a lower initial rate than fixed-rate loans, but your repayment terms may change over time.
Reduced monthly payments
One of the biggest benefits of refinancing student loans is reducing your monthly payment. When you refinance, you can get a lower interest rate on your new loan and this will save you money by reducing how much you pay each month.
If you have federal student loans, refinancing is only available with private lenders such as SoFi, who offer fixed and variable interest rates that are typically lower than federal student loan rates. This can also help if your credit score has improved since taking out the original loan because it enables you to take advantage of lower rates that may have been unavailable before. Lantern by SoFi professionals says, “It could result in big savings.”
Improved cash flow
When you refinance your student loans, you can reduce your monthly payments and pay off your loan sooner. Instead of paying $600 per month for a $30k loan at 7% APR, you may only have to make $300 payments each month on a new 10-year term at 4%.
This will help increase your cash flow as soon as the refinanced loan is started by allowing more money to be available for other things like savings or investing in stocks. The quicker repayment can also help boost credit scores which may provide benefits such as lower interest rates on future loans and better access to credit cards with higher limits.
In conclusion, refinancing student loans can be a great way to get back on track with your finances. However, you may not think that you have much to gain from refinancing, but consider all of the benefits listed above before making any rash decisions.