Did you know you can refinance a student loan more than once? The only restriction to refinancing is that you need to meet the lender’s eligibility criteria. If you meet all the requirements and can get a loan with better terms, it may sense to refinance student loans multiple times. But, why refinance in the first place?

Why Refinance Student Loans At All?

When you read about how best to manage student loans, you’ll find that all experts recommend refinancing. There’s no doubt that refinancing student loans can be hugely beneficial provided that you go about it smartly.

Refinancing is when you take out a new loan to replace one or more existing student loans. The new loan will have new repayment plans, a different interest rate, and maybe a new lender too.

The most common reason students choose to refinance is to lower their interest rate. When you apply for refinancing, the lender will first check your credit history and other financial details. If your credit is good and you have a steady income and low debt-to-income ratio, you’ll qualify for lower interest rates. Under these circumstances it makes sense to refinance. The lower interest rate could save you a substantial amount of money over the life of the loan. Your exact savings will depend on the difference in rates between your new and existing student loans.

Another reason you may want to refinance student loans is because you can’t afford the monthly payments. If you miss any payment after the six-month grace period, it will be considered a missed payment. This will hurt your credit score. In addition, you will also have to pay a stiff penalty for the late payment, sending you further into debt. The only solution is to refinance your student loan and extend the loan term. This spreads the outstanding loan amount over a longer time period, which lowers your monthly payments. You pay more interest over the longer term but it helps resolve your immediate crisis and protects your credit.

Why Refinance Student Loans A Second Or Third Time?

As we said earlier, you can refinance multiple times. The main reason to refinance again is for lower interest rates. Lenders assess your credit score, monthly income, and debt-to-income ratio to calculate a customized interest rate for refinancing.

During the early days after graduation, your financial credentials are unlikely to qualify you for a lower rate. However, your financial situation is sure to improve with time as you get a steady higher-paying job. Paying off all debts on time will help boost your credit score simultaneously. A steady monthly income and high credit score will qualify you for a lower interest rate. Refinancing with even a marginal drop in interest can save you thousands of dollars over the life of your loan. You can save even more if you refinance again after your finances improve even more.

Is Refinancing Student Loans Multiple Times Right For You?

You know you can refinance student loans multiple times, but is it right for you? This is not the best option for everyone.

You should consider refinancing only if:

• Market rates have dropped – When markets are weak, interest rates drop across the board. Lenders set their base rate in accordance with market rates. A weak market means lower interest rates on refinanced loans too. You will benefit by refinancing every time interest rates drop below your current rate.
• Your finances have improved – With time and experience, your income is sure to increase over the years. Using this to pay off all monthly debts on time will boost your credit score. Careful spending will help lower your debt-to-income ratio. With this strong background, lenders will offer you a lower rate on your refinanced loan. Refinancing every time you qualify for a better rate will boost your savings.
• You urgently need to free up your monthly cash flow – A medical or other emergency can strain your finances and mess up your carefully planned budget. Refinancing with an extended loan can help lower your monthly payments and free up much-needed cash. You should know that this will make your loan more expensive but that’s far better than defaulting on your payments. When your finances recover, you can refinance again with a better rate.

The Right Way To Refinance Student Loans Multiple Times

Start by assessing your finances. Has your financial situation improved since the last time you refinanced your student loans? If it is, you’re on the right track to consider refinancing.

The next thing you need to do is to check your credit report for errors. An error on your report cause lower your score and prevent you from getting the best rate on your loan. If you spot any errors, report them and get them corrected before you approach any lender.

Once all is clear on your credit report, you’re set to start exploring your options for refinancing. Lenders often publish their interest rates on their website. Remember, these are just estimated rates. Lenders will give you a customized quote after evaluating your financial history, including your credit score. Getting quotes from several lenders will help you choose one that’s offering you the best terms and lowest rates.

Some Downsides to Multiple Refinances

The biggest thing to note with refinancing, is that your credit will take a hit. All lenders must do a hard credit check when approving you for a loan. It can be worth the hit as long as you maintain on-time payments and are responsible.

Before signing an agreement with any lender, make sure to read the fine print thoroughly to see if there are any hidden fees. Some lenders quote very low rates which they make up for by charging origination and other fees. These could make the loan more expensive for you. Don’t rush to sign any agreement. Go through all terms, fees and other conditions carefully before you refinance student loans with any lender.