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Something nearly every college graduate faces after receiving that well-deserved degree is – cue dreadful music – it’s time to begin repayment of their student loans.
If you’re a recent graduate, you’re probably contemplating your repayment options. There are so many, you might feel a bit overwhelmed. Before you make any decisions, stop to assess your situation. Answer these three questions to see if refinancing your student loans is right for you.
You might have recently obtained a credit report, or maybe you have an online subscription with a top credit monitoring service – in that case, you already know the answer to this question. If not, get a copy of your report so you can see what your refinancing lender will see when they obtain your info to make their refinancing decision.
Private lenders base your creditworthiness on your current credit score. This also determines what interest rate your new loan will carry. For the lowest interest rates, you need to have a high credit rating. There are other factors that go into the lender’s determination, such as your current income and other debts, but your credit score is quite important.
The new lender will take into consideration your earning potential. Did you study to become a lawyer or a physician? This makes you a great candidate for refinancing. Each lending institution has its own requirements, so understanding what your new lender looks for when it comes to credit scores and income is a good starting point.
If you don’t meet a lending institution’s requirements for your student loan refinance, you may still be able to qualify by obtaining a co-signer on your loan. The co-signer’s creditworthiness and income will be taken into account when making a determination because the co-signer by definition is stating that he or she is willing to be just as obligated by the loan terms as you are. If you are unable to pay, known as defaulting, the co-signer becomes responsible for the amount.
Because of this responsibility, you should only consider obtaining a co-signer after much deliberation. Advantages and risks are equal with this option. You might be able to secure a low interest rate, but you might also damage the credit of someone else if no one makes the payments.
As you investigate, you may discover you’re not eligible for refinance, or maybe the type of student loan you have doesn’t allow refinancing. Or what if you’re considered by the lender to have high income potential, but you decide to take a different job somewhere down the road? What if your payments are then too high?
With proper forethought and a bit of insight, you can discover how to navigate your post-college years.