September 27, 2021 – Lending Rates Fall – Forbes Advisor
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Over the past week, the average student loan refinanced rate has fallen. For many borrowers, interest rates remain low enough to warrant refinancing their student loans.
For borrowers with a credit score of 720 or greater who pre-qualified on Credible.com’s Student Loans Marketplace from September 20 through September 24, the average fixed rate on a 10-year refinance loan was 3.41%. On a five-year floating rate loan, the rate was 2.93%, according to Credible.com.
Related: The best lenders for student loans
Fixed rate loans
The average fixed rate on 10-year refinancing loans fell 0.08% last week to 3.41%. In the previous week, the average was 3.49%.
Fixed rates do not change during a borrower’s loan term. This enables borrowers to secure an interest rate now that is significantly lower than they would have received at that time last year. At that time last year, the average fixed rate on a 10-year refinancing loan was 4.12%, 0.71% above today’s rate.
A borrower refinancing a student loan of $ 20,000 at today’s average fixed rate would pay about $ 197 per month and about $ 3,632 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable Rate Loans
Last week, the average interest rate on a five-year floating student refinance loan fell from 2.95% to an average of 2.93%.
Unlike fixed rates, floating rates fluctuate over the course of a loan period based on market conditions and the index to which they are linked. Many refinancing providers recalculate the interest rates for borrowers with floating rate loans on a monthly basis, but usually limit the amount of the interest rate – for example to 18%.
If you were to refinance an existing $ 20,000 loan into a five year loan with a floating rate of 2.93%, you would pay an average of about $ 359 per month. For the total interest over the life of the loan, you would pay about $ 1,525. Since the interest rate is variable, it can of course fluctuate up or down from month to month.
Related: Should You Refinance Student Loans?
When should you refinance a student loan?
Most lenders require borrowers to complete their deals before refinancing – though not all – so in most cases, wait until you get your deal before refinancing. You also need good or excellent credit and a stable income to get access to the lowest interest rates.
If you don’t have enough credit or income to qualify, you can either wait and refinance later or hire a co-signer. The co-signer you choose should be aware that they will be responsible for paying the student loan when you can no longer do so and that the loan will appear on their credit report.
Calculate your potential savings before you decide to refinance. It’s important to make sure you’re saving enough to warrant a refinance. Buy in installments from multiple lenders and consider your creditworthiness when shopping. Remember, those with the highest credit scores get the lowest rates.
Refinancing of federal loans in personal loans
If you convert federal student loan to personal loan, you will lose access to some federal loan benefits. You no longer have access to functions such as:
You may not need these programs if you have stable income and plan to pay off your loan quickly. But make sure you don’t need these programs if you are thinking about federal student loan refinancing.
When you need to take advantage of these programs, you can refinance just your private loan or just part of your federal loan.
Fixed rate loans vs. floating rate loans
A major goal of student loan refinancing for many borrowers is to reduce the interest paid. And that means getting the lowest interest rate.
You may find that floating rate loans start out lower than fixed rate loans. But because they are variable, they have the potential to increase in the future.
Fortunately, you can reduce your risk by paying off your new refinancing loan quickly, or at least as quickly as possible. Start by choosing a short loan term, but with a manageable payment. Then pay whenever you can. This can hedge your risk against possible interest rate hikes.
As you consider your options, compare prices with multiple student loan refiners to ensure you don’t miss out on potential savings. Find out if you qualify for additional interest rebates, possibly through automatic payments or through an existing financial account with a lender.