If you have a loan with a high interest rate, you might be struggling to make large payments. High-interest loans can hold you back from paying off your loan sooner. But you can refinance a loan if it gets to be too much to handle.
If you’re looking to lower your loan payments, refinancing can help. Learn what refinancing a loan means and what you need to do to get started.
What does it mean to refinance a loan?
Refinancing a loan replaces your current loan with a new one, usually with a lower interest rate, a longer repayment period, or both. These better terms can help if you’re struggling to make payments.
Your old financing agreement is replaced with a new one, hence “refinancing.” You can refinance many types of loans: a mortgage, a car loan, and even your student loans.
What’s the difference between refinancing and consolidation?
Refinancing can be a form of consolidation, but not all consolidation is refinancing. Consolidation combines many different loans into one streamlined loan, usually averaging your interest rates to make a new one. Refinancing just means having one loan in place of another.
You can learn more about the differences between consolidation and refinancing before making your decision.
Why should you refinance a loan?
When you first took out a loan, your credit score was a major factor in your repayment term and interest rate. If you took out a student loan before starting college, you might’ve had your cosigner’s credit considered as well.
Your loan might have a variable interest rate, which fluctuates depending on how the market changes. If you received a loan when the market was up, your interest rate was probably up too (and vice versa).
Refinancing a loan is beneficial if it lowers your interest rate or perhaps your monthly payment. If you’re struggling to keep up with your payments, you should probably look into refinancing.
When should you skip refinancing a loan?
Refinancing a loan is great, but there are downsides. Lower monthly payments mean you’re going to pay more over the life of the loan because of the accruing interest. Even if it’s less than your last loan, it can still raise your total payment.
Refinancing isn’t for everyone. If your income isn’t steady, you might not have the means to afford to repay your loans at all.
If you want to refinance your student loans, make sure to check with your lenders. You can refinance both federal and private student loans. But if you refinance your federal loans, you could lose some federal protections, such as qualifying for income-driven repayment plans and Public Service Loan Forgiveness.
If you can’t repay your student loans, though, look into deferment or forbearance until you can get your finances in order. Deferment is when you are allowed to stop paying your student loans for up to three years. Forbearance can pause or reduce your payments for up to one year and has slightly different eligibility requirements. Both are only temporary, and you must get lender approval to receive either.
If you can’t afford your mortgage payments, refinancing might also help, but you could still be struggling. In that case, you can talk to your servicer about mortgage assistance. The Department of Housing and Urban Development offers housing counseling. Depending on your situation, you might qualify for rehabilitation counseling, services for homeless counseling, and mortgage delinquency, among others.
While you can’t refinance credit card debt to lower monthly payments, you can do a few other things. You can take out a personal loan to pay off high-interest credit card debt or take advantage of 0% interest charges on a credit card balance transfer. Both of these are good refinancing alternatives.
For car loans, if you can’t lower your interest by at least one percentage point, which could save you hundreds, or if you owe more than the car is worth, you likely should avoid refinancing.
How to refinance a loan
If you’re refinancing your private student loans, you might be consolidating many different loans into one. Check with a few different lenders before you choose. Look through different rates and repayment terms to find the best one for your financial situation. Make sure you’re prepared to refinance before you get started.
If you’re refinancing credit cards, you might want to take out a personal loan. Personal loans tend to have lower interest rates than credit cards and friendlier repayment terms.
If you’re refinancing your mortgage to lower your monthly payments, your credit score and income determine your new rates. Make sure you have all your requirements to refinance your mortgage.
Can you refinance a loan more than once?
If you’ve already refinanced a loan and want to refinance again, it’s possible. You probably won’t get better terms than you have now, but it might be worth checking out to see if you can lower interest rates and monthly payments again.
You’re still extending the life of your loan, though, so you could end up paying more in interest over time because of it. Review all your financial options before deciding to refinance again.
Refinancing isn’t always the right fit
Refinancing a loan is a great option for you if you’re having trouble making your monthly payments, though you’ll want to shop around for a good rate. But even though there are many benefits to refinancing, it’s not ideal for everyone.
Review your loans and see what you qualify for as you consider the possibility of refinancing. There are a few options for you to lower your payments if you can’t refinance, so explore all the ways you can save on loan repayment.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 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 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% 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 March 18, 2019, 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 0318/2019. 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.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
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.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.69% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|