Aug 30, 2021 — Slightly Rising Loan Rate – Forbes Advisor
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Refinanced student loan rates jumped last week. But if you are interested in refinancing your student loans, you can still get a relatively low rate.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan market from August 23-27, the average fixed interest rate on a 10-year refinance loan was 3. , 51%. On a five-year variable rate loan, the rate was 2.53%, according to Credible.com.
Related: Best Student Loan Refinance Lenders
Fixed rate loans
Last week, the average fixed rate on a 10-year refinance loan rose 0.05% to 3.51%. The average stood at 3.46% the week before.
At the same time last year, the average fixed rate on a 10-year refinance loan was 4.19%, 0.68% higher than the current rate. This means that borrowers who refinance now have the option of locking in a rate that is significantly lower than they would have received at this time last year.
If you were to refinance $ 20,000 in student loans at the current average fixed rate, you would pay about $ 198 per month and about $ 3,744 in total interest over 10 years, according to the Forbes Advisor student loan calculator.
Variable rate loans
Last week, the average rate on a five-year variable refinancing student loan fell to 2.53% on average from 2.71%.
Variable interest rates fluctuate over the life of a loan depending on the index to which they are linked and market conditions. Many refinance lenders recalculate the rates monthly for borrowers with variable rate loans, but they usually limit the level at which the rate can go – lenders can set a limit of 18%, for example.
If you were to refinance an existing $ 20,000 loan into a five-year loan at a variable interest rate of 2.53%, you would pay around $ 355 on average per month. In total interest over the life of the loan, you would pay approximately $ 1,313. Of course, since the interest rate is variable, it can go up or down from month to month.
Related: Should You Refinance Student Loans?
Compare Student Loan Refinance Rates
Refinancing a student loan at the lowest possible interest rate is one of the best ways to reduce the amount of interest you will pay over the life of the loan.
While variable rates may start out low, they could go up in the future, which makes it a gamble. But one way to limit your exposure to risk is to pay off your new refinance loan as quickly as possible. Keep the loan term as short as possible and pay extra when possible so that you are not subject to possible rate increases in the future.
Whether you choose a fixed or variable rate loan, it’s important to compare the rates of multiple lenders to make sure you don’t miss out on any savings. You may be able to benefit from interest rate reductions by opting for automatic payments or having an existing relationship with a lender.
When Should You Refinance Student Loans?
Most lenders require borrowers to graduate before refinancing, but not all, so in most cases, it’s best to wait until you graduate to refinance. You will also need a good or excellent credit score and a stable income in order to access the lowest interest rates.
If you don’t yet have enough credit or income to qualify, you can either wait and refinance later or go with a co-signer. The co-signer you choose should know that they will be responsible for making student loan payments if you can’t anymore, and that the loan will show up on their credit report.
Finally, make sure you can save enough money to justify refinancing. At today’s rates, most borrowers with high credit scores can benefit from refinancing. But those with not very good credit and who will not receive the lowest fixed or variable interest rates may not be. First, explore the rates at which you could prequalify through multiple lenders, then calculate your potential savings.
Refinancing Federal Loans to Private Loans
When you refinance federal student loans to a private loan, you will lose access to some of the benefits of federal loans. You will no longer have access to features such as:
If you’re thinking about refinancing federal student loans, first make sure that you probably won’t need to use any of these programs. This may be the case if your income is stable and you plan to pay off a refinance loan quickly. You still have the option of refinancing only your private loans, or only a portion of your federal loans. Since the fixed interest rates on federal loans are usually quite low, you may also decide that refinancing would not lead to substantial savings.