- December 4, 2020
Is Refinancing the Student Loan a Good Option for You?
The pandemic has caused financial instability across the world with millions are now struggling to get employed again. People with student loans are having a tough time keeping up the repayment. With the uncertainties all around, it is easy to fall victim to overwhelming stress.
Student loan refinancing can be of great help to get you through this financial instability. You may find the interest rates and installments lower than your current lender. However, it has some downsides like any other type of liability.
In this article, we have mentioned the pros and cons of student loan refinancing to help you make a decision.
Lower Interest Rates
Lenders offer you an interest rate based on different factors that include your credit history, co-signor, loan duration. If your financial status has increased over the years, the interest rate will be lower with the refinancing. The money saved in installments can be really helpful during the time of financial troubles.
You will save thousands of pounds with a lower interest rate. Select longer durations if you want to reduce the installments. A long-term loan is helpful in situations when the interest rates are slightly different.
There is no guarantee that the lenders will offer you low-interest rates for refinancing. You must take good care of your credit ratings and file an application if there is some error. You might have to move around quite a lot to get the best terms for the loan.
More Strict Terms
Your current provider might offer you forbearance for the unemployment period or when the income is too low. This helps you during times of financial instability as you can avail a kind of holiday from the repayment. The loan term will get extended based on the repayment holiday availed.
However, there is no guarantee the other lender will offer you the same terms. The unemployment protection period might be shorter than the one you currently have. The government even offers loan forgiveness to students which is extremely rare in the case of private lenders.
Therefore, you should always weight unemployment protection as an important factor while refinancing. Avail of quick loans at home to solve small money problems instead of refinancing.
A Single Payment for All the Debts
Student loans combined with other liabilities creates a mess of the financial situation. It is quite difficult to keep track of all the repayment. And the different interest rates may seem unreasonable.
You can get rid of the multiple payments with student loan refinancing which will act as debt consolidation. The interest rate will be lower than some of the other liabilities. Also, it will be easier to manage a single payment instead of multiple payments at different times.
You will save a certain amount of money each month which can be used to stay afloat during the crisis. Also, there will be less stress on remembering each payment, reducing the risk of default. However, securing the amount required may not be as easy as it sounds.
Reduce Payment Flexibility
Apart from the repayment holiday, your current lender might offer you a flexible loan duration. This way you can alter the duration of the loan based on your financial situation. However, refinancing locks you in a predefined duration for the rest of the loan term.
Flexibility is not only helpful during troubling times. You can reduce the term duration to repay the loan faster. The installments will be more, but the overall cost will reduce significantly.
You still have the refinance the student loan for the second time. The approval will again depend on numerous factors. And it makes no sense in going through the process again if you can have agent loans to your door.
Benefits of a Guarantor
You have to option to enjoy a lower interest rate with a guarantor by your side. This way, you can increase your eligibility for refinancing. Your credit history won’t affect the application much considering the guarantor have a clean record.
You don’t need to have a guarantor for the refinancing of the student loan. However, it helps you get more favorable terms. Many lenders will even offer you the option to release the guarantor from the contract in the future.
Hard to Find Eligible Guarantor
It is simple to get loans for bad credit with no guarantor and no fees in the UK. The eligibility criteria are quite strict and sometimes unreasonable. Add the trouble of finding someone willing to sign up for a guarantor.
To sum up, student loan refinancing is an alternative that works a majority of the time when the credit score is good. It may work in cases where you have the eligible guarantor to co-sign the loan. However, there is no guarantee that the offered terms will be more favorable.