What credit rating is required to refinance student loans?
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Borrowers who want to refinance student loans are likely to need good or excellent credit to qualify.
According to Experian, one of the three major credit bureaus, 670 is typically the basic credit score lenders need to be eligible for student loan refinancing.
On the FICO score ranges, scores between 670 and 739 are considered “good”. But the eligibility requirements of some lenders allow applicants to have scores in the “fair” range, between 580 and 669, to qualify. For example, private lender Earnest states on their website that potential borrowers should have a minimum credit score of 650.
Regardless of the credit score thresholds, the higher your score, the more likely you are to get a lower interest rate, which is one of the main reasons you should consider refinancing in the first place. . Your credit score is the most important factor in determining your new student loan refinance rate, and a low interest rate not only lowers your monthly payments, but will help you save money in the long run.
Beyond your credit score, however, you will need to meet additional eligibility requirements in order to refinance your student loans. Here are the other things to consider:
Eligibility conditions for refinancing a student loan
In addition to having good or excellent credit, interested borrowers looking to refinance their student loans will likely need to be able to show the following:
- A history of on-time student loan payments gives lenders insight into your payment behavior on your current student loans and the likelihood that you will pay off your new refinanced loan on time.
- Reliable or constant income shows lenders that you have the money and the ability to pay off your new refinanced loan in full, well into the future
- A weak debt / income (DTI) report reveal to lenders if you can afford your new monthly payments. Your DTI ratio shows the amount of your debt compared to your income. A low DTI ratio indicates that you earn more than you owe, while a high DTI means that more of your salary is used to pay off your debts. Lenders like to see a DTI ratio of 40% or less. Lower your DTI ratio by paying off your debts, such as credit card balances, and / or increasing your income, such as asking for a raise.
To calculate your DTI ratio, divide your total monthly payments (credit card bills, rent or mortgage, car loan) by your gross monthly income (what you earn each month before taxes and other deductions).
- Proof of diploma certifies that you have obtained your diploma. Most lenders will only approve graduate and graduate borrowers.
Keep in mind that some lenders are only available in certain states, most require borrowers to be U.S. citizens or permanent residents, and some degrees and schools may require additional criteria from lenders to be eligible. Check with your lender for full details before submitting an application.
What to do if you don’t meet these refinancing conditions
If you are not eligible for refinancing on your own, you can apply with a co-signer who meets the above requirements. It can be a parent, sibling, or partner.
Just make sure that you and your co-signer fully understand all of the terms as there are some risks involved when having someone else sign the refinanced loan. The primary borrower and their co-signer share the responsibility for the loan, so if payments are not made, the co-signer is held responsible for repayment. And, if the primary borrower misses a monthly payment, their co-signer’s credit will also be affected.
Watch out for refinance lenders who offer co-signer authorizations. Many lenders allow co-signers to be taken out of the loan after the primary borrower has made a number of consecutive payments on time, which can take the strain off the co-signer knowing that they don’t have to stay for the full term. of the loan.
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