Are you considering refinancing but asking yourself “˜how many times can I refinance student loans?’ The short answer is you can refinance student loans as many times as you want to. There are no restrictions as to how many times you can refinance. Moreover, refinancing doesn’t cost you anything.
However, just because you can, doesn’t mean you should. While refinancing does offer several benefits, it only make sense under certain circumstances. There are also a few potential downsides that you should be aware of, especially when refinancing federal student loans.
Before diving into how many times you can refinance student loans, it helps to understand what is student loan refinancing, how it works, and the pros and cons.
What Is Student Loan Refinance?
Refinancing involves exchanging your current student loans for a new loan with completely different terms and a new interest rate too. So why would anyone choose to refinance their student loans? Different individuals may have a different reason for choosing this option.
Some choose to refinance because their improved finances and credit score qualifies them for a lower rate of interest. A drop in interest rate, however small, can mean thousands of dollars in savings over the term of the loan.
Others choose to refinance to increase their monthly payments and clear their loans faster. The earlier you can clear you debt the better. Not only can it be incredibly freeing but it also means huge savings in accrued interest. Less interest accrues over the shorter loan term.
Borrowers who are financially strained and struggling to make the monthly payments choose to refinance to lower the monthly payments. This makes the loan payments more affordable and also eliminates the risk of defaulting on the loan, which can have several long-term consequences.
Another reason to refinance could be to release a cosigner from the original loan. Students generally don’t qualify for loans on their own merit so many borrow money with a cosigner. The cosigner shares responsibility with the student for paying back the debt. However, it isn’t fair to hold a cosigner to that commitment indefinitely. The only release a cosigner from a loan is by refinancing.
Few borrowers refinance to change their lender. Although this is not a common reason, a borrower may feel compelling to take this step if they’re having ongoing problems with their current lender.
Refinancing may be the solution you’re looking for if you want to change the terms of your existing loans for any of the reasons above.
Top Reasons Why You May Want To Refinance Student Loans Multiple Times
You may consider refinancing a second or even third time for the same or different reasons as the first time you refinanced. Here’s a look at some of the top reasons why you may want to refinance student loans multiple times.
#1. You Qualify for a Lower Interest Rate
Scoring a lower interest rate and racking up those savings is the single most compelling reason for refinancing multiple times.
When you refinanced the first time, the lender would have quoted an interest rate based on your financial circumstances at that time. If your credit score has improved since then, you may qualify for a lower interest rate on the outstanding loan amount. Even better if your debt-to-income ratio has reduced. With a stronger credit score and a lower debt-to-income ratio, you’ll be able to refinance at a much lower interest rate. Even a marginal drop in the rate can mean substantial savings in interest over the remaining loan term. This makes it worthwhile to refinance again.
Remember, you can refinance multiple times. This means you can apply for refinancing again to snag even lower interest rates and rack up those savings after your finances get stronger. If you do this strategically, in addition to saving thousands of dollars in interest, you’ll also pay off your student loan debt earlier. This is a massive win and a compelling enough reason to refinance your student loans multiple times.
#2. Market Rates Have Fallen
Lenders set their base interest rates to interest rates across the board. When markets are weak and interest rates drop, you’ll be able to lock in a lower base rate when you refinance. Refinancing when market rates have dropped even further will help you get an even lower rate. This is regardless of whether or not your credit score has improved.
#3. You Need to Free Up Cash Flow
There are several reasons why you may be struggling financially. Covering the monthly payments can be a constant struggle. Unfortunately, if you miss a deadline, the lender will charge you hefty interest on the missed payment plus a late payment fee. This gets added to your debt, increasing it and making it even more difficult to pay off. The longer you take to pay it off, the larger the debt grows.
In addition to increasing your debt, the missed payment will be entered on your credit report and damage your credit score. The missed payment stays on your credit report for about 7 years so all potential lenders will see it. This could make it even more difficult to get a line of credit in the future.
Refinancing to lower the monthly payments is one way to free up urgent cash flow. You should know that lowering the monthly payments will increase the loan term. This means you’ll take longer to pay off your debt and you’ll also pay more in accrued interest over the longer term. But you can refinance again to increase the monthly payments when your finances improve.
Potential Downsides to Refinancing Student Loans Multiple Times
There are no major downsides to refinancing student loans multiple times as long as you go about it strategically. In general, refinancing multiple times is a good idea if you’re going to save money or need to get to make the monthly payments more affordable.
The one downside to be aware of is that lenders do a hard credit check before approving your loan refinance application. This will pull your credit score down by a few points. Too many hard credit checks within a short period can lower your score considerably. Prequalifying with multiple lenders can help you compare multiple lenders and shop around for the best rate without damaging your credit score.
Another potential downside to refinancing multiple times is the amount of time it can take to compare lenders and their rates as well as their eligibility criteria.
At Refi.me, you can calculate what rate you qualify for and compare personalized rates offered by multiple lenders without affecting your score. And all it will take you is a few minutes.
Some Things to Think About Before Refinancing Student Loans Multiple Times
Check your credit report – Your credit score is calculated based on the entries on your credit report. Any errors in the report could cause your score to drop for no fault of yours. This lower score will prevent you from getting the lowest rate possible on your new loan. Checking your credit report can help rectify this. If you do spot any wrong or incomplete entries, file a dispute and ask the credit bureau to correct them. This may take a couple of weeks but once it’s done your score will reflect accurately and you’ll be able to get the low interest rate you’ve earned.
Compare lenders and their terms, rates, and fees – Don’t rush into refinancing with the lender offering the lowest interest. Some lenders offer rock bottom rates and offset it with assorted fees hidden in the fine print. This can increase the cost of your loan significantly. Remember, reputed lenders don’t charge any fees for refinancing. When researching lenders, compare interest rates, fees, and all other terms and conditions before signing any agreement.
Want To Refinance Your Student Loans? Your Next Steps
If you’ve decided to refinance your loans, here’s what you should do next:
- Consider your refinancing goals
- Check your credit report and get all inaccuracies corrected
- Go through your finances and see if you can free up cash every month so you can increase your monthly payments
- Go to Refi.me and enter in your details to get personalized interest rates from multiple lenders
- Choose the lender best suited to your required
- Fill in the refinance application
- Gather together the required documents
- Submit the application along with the necessary documents
One last thing to remember – It can take a couple of weeks to get the loan processed. You must continue making payments on your existing loans till you receive notification that the new loan has been processed. If you stop payments prematurely it will be considered a missed payment and you’ll have to pay a fine and interest.
