5 Ways Of Lowering The Rates On Your Student Loan
Many people are paying too much interest on their student loans without even realizing it. Below we suggest five ways you might make savings.
Refinancing your student loan is the best way of reducing the interest rates. To refinance student loans, you take your private loans and your federal loans and combine them, taking out a new student loan with lower interest rates. Depending on the size of your loan, enjoying a lower interest rate could put a substantial amount of money back in your pocket.
Strengthen your credit
If you want to refinance your student loan, you’ll need a credit score of 650+. People with high credit scores get lower interest rates. Your credit score reflects the way that lenders view you, i.e. do you borrow responsibly, and are you likely to make your payments regularly and on time. You can build up your credit score by showing that you don’t skip payments or default on loans.
Get a variable rate loan
Federal student loans are set at fixed interest, but student loans can be refinanced to receive variable interest rates. Variable interest rate student loans usually enjoy low rates of interest. Bear in mind that with fixed interest rates, you will always know what your repayments will be; with variable rates, repayment amounts can fluctuate. If interest rates are rising, your loan may be more expensive than a fixed-rate one, but if they are falling, you’ll be in profit. Ask your financial advisor when and why it’s advisable to go for variable rates.
Repay more quickly
People who pay their loans off more quickly will get lower interest rates. You might wonder why this is, as obviously the more quickly you pay, the less a loan company makes from you. The reason is that they will get their capital back quickly, safely and securely, which they can then reinvest elsewhere. Obviously, you’re going to be paying more per month paying back over five years than you would be paying back over twenty, but the total sum you have to pay will be a lot less.
Find a co-signatory
It may be that you have a bad credit rating or in some other way don’t qualify for student loan refinancing, but all is not lost. A co-signatory – usually a family member like a spouse, sibling or parent who has a good credit score and sufficient income to cover your loan if necessary – can help you to get loan refinancing, and the better their credit score is, the better interest rates you get and the more likely you are to be approved. Certain lenders offer “co-signatory release”, meaning that when your credit rating or income has built up to a certain level you can release your co-signatory from their obligations.