Refinancing is a great solution when you’re looking for a way to change the terms of your student loans. Perhaps you want to reduce the loan term so you can pay off your loans faster. Or you may want to extend the term to lower the monthly payments so they are more affordable. Whatever your goal, when you want to change your loan term, refinancing is the way to do it.

These are the two repayment plan options you can choose from when refinancing student loans.

#1- Short Or Long Term Refinance Repayment Plan

Every lender sets their own repayment options but most set it at a minimum of five years and a maximum of twenty years. You can choose any repayment term in that range. Whether you choose a shorter or longer term will depend on your current financial situation and your long term financial goals.

When to choose a shorter repayment plan

If your goal is to pay off your loans faster, you can choose a repayment plan that’s shorter than your current plan. You should know in order to reduce the repayment term, you will have to increase your monthly payments. This is a great option if your finances are strong and you can afford the higher payments. Besides paying off your debt faster, you’ll also save a lot in interest accrued over the shorter term.

When to choose a longer repayment plan

If can’t afford to pay your currently monthly loan amount, you can refinance to lower the monthly payments. Doing this will involve extending the term of your loan. It also means you’ll pay much more in interest over the longer repayment term. Despite the apparent downsides, this option can help you avoid potentially defaulting on your loan, which has even more severe consequences.

#2 – Fixed vs. Variable Rate Refinance Repayment Plan

All lenders offer a fixed rate repayment plan but not all offer the option of a variable rate plan. If you’re looking to refinance with a variable rate, you’ll have to look for a lender that offers this option.

When to choose a fixed rate repayment plan

With this plan, the interest rate and monthly payments remain the same through the life of your loan. Knowing how much you need to set aside every month towards loan payments helps when you want to create a long-term budget. This is a better option for you if you like predictability when it comes to money matters. The downside to fixed rates is that you won’t get the benefit of lower rates when market rates go down.

When to choose a variable rate repayment plan

With this plan, the interest rates and monthly payments fluctuate depending on market conditions. If markets go down, your interest rates will go down too. On the other hand, if markets get stronger, your interest rates will increase. A variable rate is the better option if you plan to pay off your loans faster. This will allow you to benefit from the lower starting rate while also protecting you from major market fluctuations.

The good news is you can refinance student loans multiple times. With that in mind, it makes sense to choose a repayment plan that’s best for you at the time of refinancing. If and when your financial situation changes, you can always refinance again with a more suitable repayment plan.