Refinancing with Earnest
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Everyone makes mistakes. Sometimes things happen that are beyond our control.
After the upheaval following the 2008 financial crisis, it’s not surprising if you have a blemish or two on your credit report. With the collapse of the housing market that same year, home foreclosures shot up a record 81 percent, according to CNN Money.
Though having a home foreclosure on your credit report is now more common than it was a decade ago, it still affects your ability to complete other financial transactions — including refinancing student loans.
Here’s how to handle your student loan debt if you’ve experienced a home foreclosure.
Foreclosure can hold you back — temporarily
Refinancing your student loans could save you hundreds or thousands of dollars over the life of your debt by lowering your interest rate. It might even lower your monthly loan payment, giving you more breathing room in your budget.
But unfortunately, having a foreclosure on your record lowers your credit score, which could prevent you from refinancing your student loans.
“It depends on the effect the foreclosure has had on your credit score,” said David Bakke, a financial expert with Money Crashers. “The impact is usually pretty significant.”
When you apply to refinance your student loans, lenders look at your credit report and your credit score. In many cases, you will need a credit score of at least 660 or 680 to qualify.
A foreclosure, however, can lower your credit score by a whopping 85 to 160 points, according to FICO. The higher your initial score, the bigger the potential decrease. Even for someone who previously had excellent credit, a foreclosure can lower your score enough to put you out of the running for student loan refinancing.
A foreclosure can remain on your credit report for as long as seven years, said Bakke. If you try to apply to refinance your student loans right after a foreclosure, there’s a good chance you’ll be denied — but that doesn’t mean you should give up hope.
Give your credit time to recover
If your home was foreclosed upon, you need to give your credit score time to recover. Though the foreclosure will remain on your credit report for seven years, your credit score could start to improve much sooner.
“If you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as two years,” according to FICO.
Bakke recommended taking other actions that will make the foreclosure less important to your credit score, too. “Improve your score by paying down your balances and making all of your payments on time,” he said.
There are many things you can do to improve your credit score — make a plan and take steps to improve your score now. As you give it some time, your score will begin to recover. Once your score meets the minimum required by lenders, you can apply to refinance your student loans.
3 alternatives to refinancing student loans after foreclosure
If refinancing isn’t possible right now, you can try other methods of making your student loan payments more affordable.
1. Consider consolidation
Instead of refinancing, Lisa Vignola, a financial advisor at Veritas Wealth Advisors, suggested consolidation.
Consolidation works by combining your old loans into one new loan. If you consolidate your federal loans, for example, you would combine all your federal debt into one Direct Consolidation Loan.
This new loan would have a weighted, fixed interest rate based on your previous loans — meaning you wouldn’t save any money in interest. However, consolidation can lower your monthly payment by lengthening your loan term. Plus, it simplifies matters so you only have to pay one loan servicer each month.
This method does come with drawbacks: It could cost you more money in the long run, and getting a Direct Consolidation Loan might cause you to lose access to certain benefits. But if you need to reduce your payment right now, this option could help. After you consolidate, you can work on improving your credit and revisit refinancing later.
2. Pursue other repayment plans
If you have federal loans, Vignola said, programs such as income-driven repayment (IDR) could also help you get your monthly student loan payments under control without refinancing.
The four different IDR plans each have their own requirements, but they all work similarly: Your monthly payment is capped at a percentage of your income and your repayment period is extended to 20 or 25 years.
Again, you might pay more in interest over the life of your loan if you enroll in an IDR plan, but temporarily using this option could help you afford your monthly payments. Once your finances are more secure, you can enroll in a more cost-effective repayment plan or apply for refinancing.
3. Turn to family (with caution)
One last option, said Vignola, is to have someone else pay off your student loans. When you get your finances straightened out, you can pay them back using more favorable terms. If you’re lucky enough to get a loan from a family member, you could get ahead without the pressure from strict lenders.
If you follow this route, make the arrangement as business-like as possible. “If you take a private loan from a family member, it is always a good idea to get the agreement of the loan in writing,” said Vignola. This makes the terms of the loan clear and both parties will know what is expected of them.
Your best bet is to improve your credit
In the end, your best bet is improving your credit so that you qualify to refinance your student loans even after your foreclosure. Some ways to improve your credit include:
- Making all your current payments on time each month
- Working to reduce the amount of debt you owe
- Avoiding taking on new debt
- Checking your credit report and fixing any mistakes you see
Monitor your credit score; when it’s higher than the minimum needed, take a look at your financial situation and decide if it’s time to reapply for student loan refinancing.
As you make moves that improve your credit, that foreclosure will matter less and less. After two or three years you might be in a better position to refinance your student loans — and start saving more money.
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 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% 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 email@example.com, 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
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
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
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 6.23%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|