The coronavirus pandemic has resulted in unprecedented economic chaos, leaving millions of Americans unemployed or faced with reduced hours and causing many more to be concerned about their financial future.
Amid the current economic volatility, you may be interested in cutting your costs. If you have student loans, refinancing could potentially be an easy way to do that. Refinancing private student loans comes with few downsides as you won't have to give up any of the benefits that federal loans provide — and you may be able to reduce your rate substantially with a refinance loan as interest rates are currently near historic lows.
If you want to try to reduce your student loan interest rate to give you more wiggle room in your monthly budget, visit online marketplace Credible. Compare rates and student loan lenders within minutes.
How to lower your student loan interest rate
Here are three steps you need to take to try to drop your student loan interest rate and leave more cash in your pocket.
- Refinance your student loans
- Shop and compare student loan lenders
- Improve your credit score and debt-to-income ratio
1. Refinance your student loans
When you have private student loans, you can't change your interest rate or repayment terms unless you refinance. Refinancing involves obtaining a new loan from a different lender and using it to repay your old one.
Since interest rates are very low right now, chances are good you could refinance your student loan at a lower rate than you're currently paying. See how much you could save today by refinancing. Just enter your loan amount and estimated credit score to see rates and offers from up to 10 student loan lenders.
According to Credible's data on average student loan refinance rates, the average 10-year fixed-rate refinance loan had an interest rate of just 4.08% in October. That's a substantial decrease from last year's average of 4.76%. The average 5-year variable interest rate is also down to 3.26% compared with last year's average of 3.49%.
If you find you can reduce your costs with a refinance loan, there is no downside to going through the process of refinancing private loans. You likely don't want to refinance federal loans, though, even if you could drop your rate. To do so, you'd have to give up the chance of loan forgiveness; would have less flexibility in repayment, and would no longer be eligible for income-driven repayment plans.
Again, Credible can show you interest rates you could qualify for if you refinance your student loan. Plus, use Credible's online student loan refinance calculator to see how much you could potentially save.
2. Shop and compare student loan lenders
Unlike with federal student loan rates, which are the same for all borrowers, rates can vary substantially from one private student loan refinance lender to another.
Since your goal in refinancing is to save as much money as you can, you'll want to shop around to find which lender offers you the best loan terms. You can visit Credible to compare rates from multiple lenders at once to see which offers you the most competitive rate.
3. Improve your credit score and debt-to-income ratio
Student loan refinance loans also differ from federal student loans in that the interest rate you're offered depends upon your financial credentials. Borrowers who appear to present a lower risk of default will be offered a loan at a more competitive rate.
Two of the key things lenders look at when assessing the risk of giving you a loan are:
- Debt-to-income ratio
- Credit score
Your credit score is a measure of how responsible you've been with paying bills in the past while your debt-to-income ratio compares debt payments relative to income. The higher your credit score and the lower your debt-to-income ratio, the more confidence lenders have that you'll pay back your loan. This translates to lower rates.
The good news is, repaying your debt can help you improve both your debt-to-income ratio and credit score, so you can become a better-qualified borrower and improve your chances of getting a loan at today's historic low rates. You can also consider asking someone with good credit and a high income relative to their debt to act as a cosigner for you.
By shopping around with multiple lenders, comparing rates, and improving your financial credentials before applying, you should hopefully be able to qualify for a student loan refinance loan at a very low rate. This can save you money over time, as well as give you more money in your pocket each month by dropping the payment on your student loan debt.
If you're ready to explore your opportunities to save, visit Credible today to get pre-qualified student loan refinancing rates without affecting your credit score.