When Is the Right Time to Refinance?

When it comes to student loan refinancing, it’s not always clear if you should do it and if so, when. But one thing is clear – if you want to lower your monthly payments, it’s imperative that your refinanced loan includes a lower interest rate.

A lower interest rate requires one thing: a good credit score. So, when deciding whether or not refinancing is right for you at any particular moment in time, evaluating the state of your credit score – whether it’s improved, the same, or has gotten worse – should be the first thing you consider.

Determine your goals

For many, lowering their student loan monthly payment serves one purpose and that’s to free up income every month. However, as logical as that sounds, that’s not the only goal for everyone who refinances their student loans. For some, speeding up the time it will take to pay off the balance of the loan is just as important, and lowering the interest rate is one way to do that.

Determining your goals before refinancing your student loan – whether you would like to free up your budget or get your student loans paid off faster – will help you make informed decisions to take the next steps and find the loan that is right for you.

But, if you’re still not sure whether or not you should refinance your student loans, here are some plain-and-simple indications that you should move forward:

You feel stuck – with little-to-no credit history, many students get stuck with higher interest rates. However, once you begin working and building up a credit history, those high-interest rates become irrelevant. Refinancing is a great option if you’ve built up a credit history, have a good score and would like your student loan interest rate to reflect where you are now in life.

You want to change your rate structure – if changing your rate structure is necessary to meet your financial goals, you may want to change it – and you have two options: variable or fixed. With variable rates, the interest rate will periodically fluctuate depending on what is happening in the economy and that means your monthly payment will also fluctuate during those times.

Variable rates also generally offer an initial lower rate than a fixed rate student loan. However, if potential fluctuations like these make you nervous a fixed rate loan with a consistent monthly payment is probably your best bet.

When it comes to paying off your student loans, only you will know when the time is right. But, if you want to lower your monthly payments, change your rate structure, or pay it down at a faster pace, it’s probably a good time to explore your options.

Laurel Road.  An Approved EMRA Benefit Partner.

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