August 23, 2021 – Loan rates remain unchanged – Forbes Advisor
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The average interest rate on refinanced student loans remained the same last week. For many borrowers, this means that rates remain low enough to make refinancing a winning option.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan market August 16-20, the average fixed interest rate on a 10-year refinance loan was 3. , 46%. On a five-year variable rate loan, the rate was 2.71%, according to Credible.com.
Related: Best Student Loan Refinance Lenders
Fixed rate loans
The average rate on 10-year refinancing loans was unchanged last week. It remained at 3.46%, the same as the week before.
Because fixed interest rates stay the same for the life of a borrower’s loan, it is possible to lock in a rate that is significantly lower than what you would have received at the same time last year. The average fixed rate on a 10-year refinance loan at this time last year was 4.16%, 0.70% higher than the current rate.
Let’s say you refinanced $ 20,000 in student loans at today’s average fixed rate. You would pay about $ 197 per month and about $ 3,688 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Last week, rates on five-year variable student refinancing loans rose to 2.71% from 2.59% the week before.
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 every month for borrowers with variable rate loans, but they usually limit the rate how far the rate can go, for example, lenders can set a limit of 18%.
Refinancing an existing $ 20,000 loan to a five-year 2.71% loan would result in a monthly payment of approximately $ 357. A borrower would pay $ 1,408 in total interest over the life of the loan. But because the rate in this example is variable, it may go up or down from month to month during this time period.
Related: Should You Refinance Student Loans?
The Right Time to Refinance Student Loans
Most lenders require borrowers to graduate before refinancing, but not all, so in most cases, wait to refinance until you graduate. You will also need a good or excellent credit score and a stable income in order to access the lowest interest rates.
Using a co-signer is an option for those who do not have enough credit or income to qualify for a refinance loan. Alternatively, you can wait until your credit and income are stronger. If you do decide to use a co-signer, make sure they are aware that they will be responsible for the payments if you are unable to do so for some reason. The loan will also appear on their credit report.
It is important to make sure that you will save enough money when refinancing. While many borrowers with strong credit scores could benefit from refinancing at today’s interest rates, those with poorer credit will not benefit from the lowest rates available.
Do the math to see if refinancing will benefit your situation. Shop around for pricing, then figure out what you could save.
Other features of student loan refinancing to consider
One crucial caveat to mention is that refinancing federal student loans into a private loan means you will lose many of the benefits of federal loans, like income-driven repayment plans and generous deferral and forbearance options.
You may not need these programs if you have a stable income and plan to pay off your loan quickly. But make sure you won’t need these programs if you’re thinking about refinancing federal student loans.
If you need the benefits of these programs, you can refinance only your private loans or only a portion of your federal loans.
Compare Student Loan Refinance Rates
For most borrowers, the primary motivation for refinancing student loans is to reduce the amount of interest they will pay. This means that choosing the lowest possible interest rate is a top priority.
Variable loan rates can start lower than fixed rate loan rates. Of course, because they are variable, they are subject to interest rate increases. You can limit the risk of rising interest rates with variable rate loans by paying off your loan as quickly as possible. Nonetheless, if you like the reliability of a fixed payment, then fixed rate loans might be a better choice.
When considering your options, compare the rates of several student loan refinance lenders to make sure you don’t run out of potential savings. Find out if you qualify for additional interest rate reductions, possibly by choosing automatic payments or by having an existing financial account with a lender.