Anyone can make mistakes but they could be avoided as long as you learn more about refinancing beforehand. It is imperative to understand how the process works to avoid possible pitfalls. While refinancing can be a smart way to save money on your student loans, you may make some mistakes along the way that can turn the deal sour. These mistakes include the following.
Failing to Check the Interest Rates with a Single Lender
In terms of student loan refinancing, each lender is likely to provide you a different deal. So you must spend time shopping around before making a choice. Luckily, you can request for quotes from various lenders in just minutes. You just have to provide some basic information such as your name, educational level, income and total student debt.
Failing to Compare Various Repayment Plans
Before you pick a new repayment plan, you have to run the numbers. Your old term and interest rate must be compared with new ones. This allows you to see how much you will save on a loan with a shorter repayment term or lower interest.
Forgetting about Autopay
With autopay, your monthly payments will automatically deduct from your checking account. This option helps ensure that you do not incur late fees. And when setting up auto pay on your loan payments every month, the majority of lenders are likely to provide a certain discount.
Taking Out a Student Loan for a Holiday Vacation
A lot of people don’t want to miss out the chance to have a great holiday abroad even if they cannot afford it. So they take out a student loan to have money to spend for the trip. However, paying for this unnecessary expense can take a while. Plus you may have to get another loan to take care of the needs you should have used the student loan for. To avoid this mistake, decline an expense you cannot afford. Make sure you plan something in your budget.
Failing to Consider Refinancing or Consolidating Loans
In case your payments every month is too much for you to pay, determine your eligibility for an income-based repayment plan. And think about consolidating federal loans and refinancing private loans. But you can also consolidate both private and federal loans into a private loan. Remember though that this would mean federal loan protections.
Stopping Loan Payments Earlier than you Have to
The refinancing process often takes a few weeks. In the meantime, you need to continue to make payments. Missing a payment will have your loan being delinquent or defaulted. Also, a missed payment could mean penalties and a dented credit score.
Before stopping to pay your student loan, ensure you have settled your old loan. Once you get your lender’s approval, you will get a new loan but make sure the balance of your old loan is zero.
Private student loan consolidation and refinancing is a big decision to make and you must think about this carefully. Before making your final decision, do your homework first to ensure the option is the right one for you and can help you avoid the mistakes mentioned above. As long you have thought your options through, refinancing can be a wise financial move. You can expect to save some money and have simplified monthly payments over your loan’s life.