Refinancing with Earnest
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Choosing to refinance student loans can be one of the smartest ways to optimize your debt repayment.
Student loan refinance can save you money on interest and simplify your monthly payments by consolidating multiple loans into one. Depending on how you restructure your debt, refinancing could even help you pay off your student loans ahead of schedule.
But do student loans affect your credit score when you refinance?
The simple answer is that refinancing will have minimal impact on your credit — as long as you go about the process the right way. Here’s what you need to know about how to refinance student loans while preserving your credit score.
Do student loans hurt your credit score when you refinance?
Refinancing your student loans doesn’t typically cause a great deal of damage to your credit.
When you decide to refinance, your first move will be to shop around for offers from refinancing lenders, whether that’s with banks, credit unions, or online lenders. This shouldn’t affect your credit at all since it only involves a soft credit pull for many lenders.
Only if you find an offer you like and move forward with a full application will a hard credit check be performed. This hard inquiry could impact your credit score, but typically only by five points or fewer.
Of course, if you submit multiple full applications, your credit score could take a bigger hit. That’s why the way you go about applying for refinancing, as well as how you handle your new loan, is a key factor in determining whether refinancing will hurt your credit.
3 ways to ensure refinancing doesn’t hurt your credit
As long as you shop for offers in the right way and keep up with student loan payments, refinancing your student loans shouldn’t put your credit score at risk. This move could actually improve your credit, as it could help you pay off your loans faster.
Here are three savvy ways to go about the process.
1. Only submit a full application for the best offer
Refinancing your student loans is a big decision, so you don’t want to go with the first offer you see. Instead, take time to compare your options and find the lowest rate. Many lenders make it easy to pre-qualify for an offer with no impact on your score.
Only a full application will require a hard credit check, so try to submit just one once you find the best offer. That way, you can limit the number of inquiries on your credit report.
But you should note that your preliminary offer could change after the lender pulls your full report. If the offer is no longer attractive to you, you might have to start over.
Whatever happens, try to keep the number of full applications — and thus hard credit inquiries — to a minimum to protect your score.
Student Loan Refinancing Calculator
2. Continue paying student loans until your student loan refinance is complete
Even though you might be eager to get your refinanced student loan, the process can take time. This is why it’s essential to continue paying off your student loans until your refinanced loan is up and running.
If you stop prematurely, your lenders could report late or missed payments to the credit bureaus, thereby hurting your score. To prevent this from happening, don’t discontinue payments on your student loans until you’re 100% sure the refinancing process is complete.
3. Stay current on your refinanced student loan
Just as you don’t want to miss payments on your old student loans, you also must be careful not to skip or make late payments on your refinanced student loan.
Missing payments on debt is a surefire way to harm your credit score. Late payments can be reported in as little as 30 days and can stay on your credit report for up to seven years.
That’s why you should choose repayment terms that will work for your budget. Even though it might be tempting to choose a short repayment term, don’t do so if you’re worried about your ability to keep up with payments.
Plus, most lenders will let you make extra payments without penalty. So you could always choose a longer term on your refinanced student loan and then, if possible, pay more each month to get out of debt faster.
If you do end up with high bills that are difficult to manage, don’t wait until you can’t make a payment to talk to your new lender. Reach out to it to see if it has a hardship program or any flexibility in repayment.
Some top student loan refinancing lenders offer unemployment protection and even forbearance and deferment options. Be as proactive as you can to make sure your loans don’t go into default.
Remember, student loans are difficult to discharge in bankruptcy, and default can have long-term consequences on your credit score. Make sure to stay current on your refinanced student loan so that you can keep chipping away at debt and building your credit score with on-time payments.
When to avoid student loan refinancing
While student loan refinancing can be a strategic move for saving money on interest and getting out of debt, it’s not for everyone. If you can’t qualify for a lower interest rate, there might not be much point to refinancing.
Along similar lines, you might decide against this move if you wouldn’t benefit from restructuring your debt with new repayment terms. If you’re not sure how new terms would impact your debt, use our student loan refinancing calculator to compare your old loans with your new offer.
Another reason you might not want to refinance with a private lender is that you’d lose access to federal protections. If you refinance federal student loans, you essentially turn them into a private loan. As a result, you’ll no longer be able to apply for federal income-driven repayment plans, forbearance, deferment, or federal forgiveness programs.
As mentioned, some private lenders offer forbearance and deferment options, and some programs award student loan repayment assistance for private student loans. But you won’t have federal options anymore, so make sure you’ve weighed the pros and cons of refinancing before you apply.
What’s good for your finances is good for your credit
It’s way too easy to get hung up on achieving the “perfect” credit score. Don’t let a fear of hurting your credit stop you from taking actions that will improve your financial situation.
If you maintain a positive payment history, have a long history with financial institutions, and keep credit card balances as low as possible, you’ll be able to build a solid credit score.
That good credit score can help you achieve lower interest rates when refinancing student loans. And affordable student loans will help you keep making payments on time every month.
As you think about whether refinancing student loans is worth a potential ding on your credit score, remember this: What’s good for your finances is often what’s good for your credit score.
Shannon Insler and Honey Smith contributed to this article.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.98%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.80% – 6.22%2||Undergrad & Graduate||Visit Laurel Road|
|2.51% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|