If you haven’t yet considered refinancing your student loans, you’re losing out on a major opportunity to save money. Interest rates hit rock bottom in mid-2021. They’ve gone up since then but only marginally. Right now, interest rates are at near-record lows, making it the perfect time to prepare for refinancing your student loans.

How Does Refinancing Work?

Refinancing involves exchanging your current student loans for a completely new loan with new rates and terms. When you refinance, the lender offers you an interest rate quote that’s based on prevailing interest rates as well as your credit score.

If prevailing interest rates are low, the lender will quote a lower rate on your refinanced loan. This will save you a considerable sum in interest. If your credit score is high, you’ll qualify for an even lower rate, racking up those savings.

According to experts, rates have nowhere to go but up. If you want to lock in those low interest rates, now is the time to do it.

When you refinance, you can also increase or lower your monthly payments to better suit your present financial circumstances. This is an added bonus over the savings.

Here Are 9 Things You Can Do To Prepare For Refinancing Student Loans In 2022

#1- Decide Whether Refinancing Is Right For You

Yes, interest rates are temptingly low and you can get better terms on your loans. Despite these benefits however, refinancing may not be the right option for you right now. This is especially if you have federal student loans.

Federal student loans come with protections such as income-based repayment plans, forgiveness, and deferment or forbearance options. These protections can be very useful for borrowers who don’t have a steady job or whose income is low. When you refinance these federal student loans, they get converted to private loans and they lose all protections associated with the original loan. This is because the federal government doesn’t offer refinancing. Borrowers can only refinance with private student loans.

Before you apply for refinancing, you want to make sure that you don’t need the federal student loan protections. If your job is at risk or you’re struggling financially, don’t refinance your federal student loans.

There are no downsides to refinancing private student loans. As long as you get a lower interest rate, you should go ahead and refinance.

#2. Check Your Credit Report

Your credit report contains details of all your debt payments. A history of consistent on-time payments will add a few points to your score. Late payments on the other hand can damage your score.

Before getting quotes from lenders it’s important to check your credit report and make sure that all records are correct and complete. Missing or inaccurate entries could hurt your score for your fault of yours. This lower score could prevent you from getting the lowest possible rate when you refinance.

You’re entitled to request one free credit report a year. You can put in your request at AnnualCreditReport.com.

#3. Make A Note Of The Balances, Interest Rates & Terms Of Your Remaining Student Loans

If you’re refinancing to get a lower interest rate, you need to first know what rate you’re paying right now. Right now rates are exceptionally low so you’re current rate is likely to be higher but don’t presume anything.

Create a spread sheet listing all your loans. Against each loan write down the interest rate, balance, monthly payment, and number of payments outstanding. This will give you a bird’s eye view of all your loans making it easier to choose which loans to refinance and which to leave as is if you decide to do only a partial refinance.

#4. Research Lenders And Compare Rates

Refinance lenders vary in terms of their eligibility criteria as well as their interest rates and loan terms. You need to look for a lender offering the best terms for you.

Start by narrowing down the list by way of eligibility criteria. You only want to shortlist those lenders whose requirements you meet.

The next step is to compare the lenders’ terms and costs. This is slightly tricky so you want to be careful not to rush and sign up with the lender quoting the lowest rate on their website.

For one thing, those are just estimated rates. When you apply for refinancing, the lender will give you a personalized quote based on your credit score and other financial credentials. This rate could be significantly different from the rate quoted on their website.

Secondly, some lenders quote rock-bottom interest rates and compensate for it by charging assorted fees such as origination or prepayment fees. These hidden fees could increase the cost of borrowing considerably. When comparing costs, make sure to look at the fine print and factor all costs into your calculations.

RaptorFi has done all the work for you and listed the top refinance lenders along with their rates and refinancing terms. You can skip the time-consuming internet search and get all the details you need within minutes on this page.

#5. Understand The Difference Between Fixed And Variable Interest Rates

This is important, especially at this time when interest rates are at their lowest.

Most lenders offer fixed and variable interest rate options when you apply for refinancing student loans. Fixed rates remain the same throughout the loan term, till the loan is cleared. Variable rates fluctuate with market conditions, going up when markets are strong and vice versa. Both have their pros and cons.

Generally, it’s a good idea to choose variable rate when rates are falling as you benefit from the lower rates. On the other hand, fixed rates are a better option when rates are already low as you can lock in the low rates for the life of the loan. This can result in substantial savings.

Right now, interest rates are at their lowest. They are hardly likely to drop any further. In fact, all indications point to them rising rapidly once the economy recovers from the pandemic. Under these circumstances, you should absolutely choose a fixed interest rate when refinancing student loans in 2022.

#6. Choose Your Terms Of Refinancing

In addition to choosing between fixed and variable interest rate, you’ll also be able to choose your loan term. Most lenders offer loan terms of 5, 7, 10, 15, and 20 years.

The loan term you choose will impact your monthly payments as well as the total interest that accrues. Choosing the shortest repayment period will save you the most money but it also means increasing your monthly payments. The longer the repayment period, the lower the monthly payments but the higher the interest accrual.

Using an online student loan refinance calculator is simplest and fastest way to determine the best loan term for you. You simply enter in the loan amount, your preferred loan term and your personalized interest rates into the calculator. Within a few seconds this online tool will calculate your monthly payment amounts. You can enter in different loan terms and recalculate till you find the term that works best for you.

#7. Gather Together The Necessary Documents And Details

All lenders will want to verify your personal and financial details before approving your loan application. Waiting for the last minute to gather together the necessary documents will only delay your application submission. Get all the documents you need in advance.

You’ll usually need to upload these documents:

  • Government-issued ID
  • Proof of residency
  • Proof of employment in the form of recent pay stubs, W-2 form, or tax returns
  • Loan or payoff verification statements
  • Proof of graduation (some lenders only approve refinancing requests from borrowers who have graduated)

Finally, you’ll also have to give the lender permission to do a hard credit pull. This allows them to access your full credit report in order to calculate your personalized interest rate.

#8. Re-check All Terms & Sign The Loan Agreement

Once you’ve submitted your refinance application and all supporting documents, the lender will draw up the loan agreement and send it to you to sign. Don’t be in a rush to sign it. It’s vital to take time to read the document thoroughly, especially the fine print. You want to make sure there are no hidden fees or surprise terms and conditions.

Better still, give the agreement to somebody else to go through. They may spot something you’ve missed. You can’t be too thorough when it comes to checking any type of document, especially a loan document. You never want to be locked into any terms that are not agreeable.

If everything is in order, sign the documents and send them back to the lender for processing.

#9. Continue Making Monthly Repayments Till The New Loan Is Processed

It takes time to process a loan. Some lenders may take a week, others may take a few weeks. While the loan is being processed, you must continue making payments on your current loans. They are not considered refinanced until you’ve received notification from your new lender and you’ve received the new loan documents and funds. If you stop payments prematurely, you will be charged a late fee fine and interest on the outstanding payments.

If you want to lock in the lowest interest rate on your student loans, 2022 is definitely the right time to do it.

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