Being in debt can impact your ability to save for other important necessities. Your savings take a sharp decline as most of your money goes towards paying back the student loan as well as other expenses such as mortgage payments, retirement fund, etc.
Many people with student loans do not have savings as the amount of disposable income will be the bare minimum. To solve this problem, you can refinance your student loan. The application process and repayment options available are detailed below.
What Is the Process of Student Loan Refinancing?
There are 2 types of student loans, federal student loans and private student loans. When you opt to refinance your student loan, the existing loan will be combined into one loan which will require you to make one payment each month and the rate of interest will be decided according to your credit score.
If you are considering refinancing your student loan ensure that you meet the criteria listed.
- When the applicant has a high interest rate for the existing loan.
- When the applicant is financially stable and holds full time employment.
- If the applicant is able to lower the interest amount payable over the duration of the loan.
- If the applicant is looking to get rid of the existing debt as quickly as possible.
However, student loan refinancing is not beneficial in all situations, in some circumstances it will not help your existing debt. Avoid this option if you meet any of the following conditions.
- When the applicant does not have a permanent source of income or employment.
- When the applicant intends to use the federal loan forgiveness for their advantage.
- When the applicant is at the end of their loan repayment cycle.
- If the applicant utilizes the income-driven repayment plan in the near future.
When it comes to the federal loan forgiveness programs, refrain from doing so if you are looking to refinance your student loan. If an applicant applies for the refinancing of a federal student loan, then he/she will be disqualified from applying for any of the loan forgiveness programs.
Not all people in debt will be granted loan forgiveness, if you are ineligible for this program, your best option is to apply for student loan refinancing as it will result in you making lower monthly payments.
What are the Advantages of Refinancing a Student Loan?
Student loan refinancing is a debt relief program for the people who are facing difficulty in paying back their loan. This could be due to unforeseen circumstances, financial emergency or bad money management.
When you opt for this, the private money lender will discuss your current financial woes and will provide helpful solutions depending on your situation. Some of the most influential factors to consider when applying for the student loan refinancing program are listed as follows.
Monthly Loan Payments are Lower
When you get your student loan refinanced, you will be provided with the opportunity to choose a lower interest rate. This, in turn, will reduce your monthly payment amount.
Many people who opt for refinancing their student loans do so as the minimum payment is too high, this often leads to difficulties in making other living expenses such as rent, groceries, bills and other costs.
Another advantage of student loan refinancing is that the applicant may get the option to extend their loan term but keep in mind that this will result in you paying more interest rate throughout the remaining duration of the loan.
Loans can be Repaid Much Faster
When it comes to clearing loan payments, the sooner you are debt free, the better it will be for your financial future. Once you go ahead with the loan refinancing process and avail a lower rate of interest, you can further shorten the loan term by paying a higher amount than your monthly payments.
However, if you shorten the duration of a student loan, your monthly loan payment amount will increase. If you are able to cope with the increased amount, you will end up repaying your loan much sooner than expected.
What is a Loan Payoff Calculator and How to Use One?
A loan payoff calculator can help you accurately plan out how to clear your loan faster. To use a payoff calculator the following information is required.
- The exact loan amount (for public and private loans).
- The interest rate of the loan.
- The amount you are likely to pay each month on the loan term.
Once you have got the figures needed, proceed to open a loan payoff calculator and enter the numbers into their corresponding fields. Make sure the numbers are accurate before you select the ‘Calculate’ option and the numbers will be generated oon after.
The results displayed will give you an idea of the months or years it will take to repay the federal or private loan amount along with the total amount of interest that is to be paid on the loan balance once it has completed.
It is advisable to use a loan payoff calculator to check a suitable option for you and then proceed to check for the best student loan refinancing offers. It is important to compare the numbers with the options available beforehand to ensure that you either end up clearing your debt much faster than expected or saving more disposable income over the duration of the loan term.
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