You’ve weighed the pros and cons of refinancing student loans and figured it’s the best option for you. The next step is to determine what are the best student loan refinance terms for you.

To be clear, student loan terms for refinancing does not refer to the ‘terms and conditions’ that govern the new loan. It refers to the length of time over which you are expected to pay back the debt completely. This loan term impacts critical aspects of your loan.

How Loan Term Works

When you apply for refinancing, the lender will offer you a personalized interest rate on the new loan. This rate will depend on a couple of different factors, primarily your credit score, debt-to-income ratio, and employment status. The better your financial credentials, the lower the rate you’ll pay.

While the interest rate on the refinanced loan is set by the lender, you can choose the loan term. Most lenders offer student loan refinance terms of 5, 7, 10, 15, and 20 years. You can choose from any of these loan terms to suit your financial circumstances.

Once you’ve chosen your preferred loan term, the lender will calculate your monthly repayments. This is based on the original loan amount, the interest rate, and the loan term you’ve chosen. The total of the principle and accrued interest are divided equally so that you pay off the loan in equal monthly installments over the term of the loan.

So if you choose a loan term of 10 years, the principle and interest will be divided equally over 10 x 12 = 120 months. If you choose a loan term of 5 years, the total amount owed will be divided equally over 5 x 12 = 60 months.

The last payment will cover exactly what you owe to clear the debt with zero outstanding. This process of paying down debt is referred to as amortization.

How The Term You Choose Impacts Three Critical Aspects Of Your Loan

The loan term you choose will have a major impact on three aspects of your loan. It affects your monthly payments, the total interest that accrues, and how long you’ll take to pay off the debt completely.

Here’s a look at what happens when you choose a shorter loan term for refinancing vs. a longer long term for refinancing.

Pros & Cons Of Choosing A Longer Student Loan Term For Refinancing

When you choose a longer term, the principle and interest are spread over more months. This lowers the amount you have to pay back every month and makes the monthly payments more affordable.

The lower payments can offer great relief to someone who is financially strapped and struggling to cover their monthly expenses. Making the payments affordable greatly reduces the risk of defaulting on your loan.

While the lower monthly payments sound appealing, you must remember that more interest will accrue over the longer term. This means you’ll pay more in interest when you choose a longer term. The longer the term, the more interest that will accrue. Some lenders quote higher interest rates on longer terms, which add to the cost of the loan.

Another downside of choosing a longer term is that you’ll take longer to pay back the loan.

Pros & Cons Of Choosing A Shorter Student Loan Term For Refinancing

When you choose a shorter term, the principle and interest are spread over fewer months. This increases the amount you have to pay back every month. The higher monthly payments may or may not work for you depending on your financial situation.

If you can afford the higher monthly repayments, this option has several benefits.

You’ll pay less in interest over the shorter term, resulting in substantial savings.

You’ll also be debt-free earlier, which can be an exhilarating feeling. The sooner you pay off your debt, the sooner you’ll be able to spend your money towards your other financial goals. Instead of keeping money aside to pay down your loans you can use it to build an emergency fund or invest it.

Another little-known but notable benefit of a shorter loan term is you could potentially snag a lower rate. Refinancing lenders prefer to get their money back as early as possible and typically pair shorter terms with lower rates as an incentive to prospective borrowers. You’ll still need to have great credit to get the lowest interest rate but the term you choose will also factor into this calculation. Even a marginal drop in the rate could save you thousands in accrued interest over the loan term.

How To Choose The Best Student Loan Terms For Refinancing

There’s no one loan term that is ideal for everyone. The best student loan refinance terms for you will depend on a several different factors.

The first thing to do is to consider your refinancing goals. Ask yourself these questions:

Why exactly am I considering refinancing my student loans?

Will I get a lower interest rate on my loans? Does my credit score qualify me for a lower rate? Are market rates favorable for refinancing at lower rates?

Do I want to reduce my loan term and pay off my debt earlier? Can I afford the higher monthly payments if I choose this option?

Am I struggling to make the payments every month? Will extending the loan term to lower my monthly payments make them more affordable?

The answers to these questions will guide you towards choosing a loan term that works best for your circumstances.

Use A Student Loan Calculator To Calculate Your Exact Monthly Payments

You’ve decided whether a longer or shorter loan term is best for you right now. However, you still have to decide on a specific loan term. Should you choose a loan term of 5 or 7 years or should you go with 15 or 20 years?

This is not a decision you can or should make based on your gut feeling. You need to take time do the calculations. Using a loan refinance calculator is the easiest and fastest way to calculate your monthly payments for different loan terms.

A loan refinance calculator is an online tool. You simply enter the principle amount, rate of interest, and loan term into the relevant tabs and it will calculate your monthly payments within minutes. Perform individual calculations for all the loan term options available and decide which one will work best for you.

Once you’ve signed the loan refinance agreement, you won’t be able to change the repayment terms so make sure you pay careful attention to the monthly payment amounts. The only way to change the loan term from hereon is by refinancing the loan again.

After you’ve figured out which is the best student loan term for refinancing, it’s time to look for a lender. Use College Raptor’s Loan Finder tool for the fastest way to compare lenders and find the best one for you.