Are you planning to refinance your student loans? Worried about the hidden cost involved?
A student loan refinancing is done to lower the interest rate on the monthly payments. Most students have to take up loans with a high-interest rate as they do not have a credit history at the time of applying for the loan. If you are in this situation, the best way out is to simply refinance the student loan.
Here are the 4 student loan refinancing myths that might stop your form getting a new low-interest loan.
1. Refinancing will lower your credit score
Refinancing doesn’t lower your credit score if you follow the fundamental rules of refinancing and debt consolidation. There is a reason why some people see a major drop in their credit score immediately after refinancing. They submit full applications to lenders without considering the implications of it.
Lowering of credit score after a student loan refinancing is one of the biggest myths which stops so many students from doing it. No one deserves to pay high interest on their student loans.
2. Once you refinance, you are stuck with the same interest rate
This is not true. You can refinance as many times you want and get a better interest rate each time you do it. The only issue here is, you have to go through the paperwork and documentation process all over again as you are now taking a whole new loan.
Another reason why this subheading might be seen as a myth because when you refinance a student loan, you are subscribing to the new terms set by the lender or the credit union. People don’t want to go through the headache of reading all the terms and conditions again.
3. Refinancing is expensive
Lenders do not charge a single penny from borrowers who want to refinance their student loans. In fact, for them, it does not make any sense to charge you. They want borrowers who are responsible and are willing to repay the loan on time.
By refinancing a student loan, you can save a lot of money as you pay back at an interest much lower than the previous one. Lastly, do not entertain lenders who charge any joining fee. You should expect a sign-up bonus from them.
4. A co-signer is accountable until the loan is cleared
Lenders have a co-signer release policy that lets your parent breathe free as they are no longer held accountable for your student loan. A co-signer is needed at the time of loan application as a student does not have any credit history and the only other person they could rely on is their parent or a close relative. This gives lenders assurance that there is someone other than the student who can pay-off the debt if the student fails to finish his/her education or to secure a job later.
Summary
Refinancing is a win-win strategy for both the borrower and the new lender. Also, the old lender makes a decent profit. Obviously, not as much the new lender but there is nothing to lose. So, don’t be under an assumption that you are taking a financial risk by refinancing your student loan.