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The average interest rate on refinanced student loans increased last week. For many borrowers, rates remain low enough to make refinancing a good option.
From June 28, 2021 to July 2, 2021, the average fixed interest rate on a 10-year refinance loan was 3.65% for borrowers with a credit score of 720 or higher who prequalified in the mortgage market. student loans from Credible.com. On a five-year variable rate loan, the average interest rate was 3.04% among the same population, according to Credible.com.
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Fixed rate loans
Last week, from June 28 to July 2, the average fixed rate on 10-year refinancing loans increased last week from 0.06% to 3.65%. The previous week, the average stood at 3.59%.
Fixed interest rates do not change during the life of a borrower’s loan. This allows borrowers who are refinancing now to lock in at a much lower rate than they would have received around the same time last year. At the same time last year, the average fixed rate on a 10-year refinance loan was 4.37%, 0.72% higher than the current rate.
A borrower who refinances $ 20,000 in student loans at the current average fixed rate would pay about $ 199 per month and about $ 3,902 in total over 10 years, according to the Forbes Advisor student loan calculator.
Variable rate loans
Average variable rates on five-year refinancing loans rose last week, to 3.04% on average from 2.94%.
Unlike fixed rates, variable interest rates fluctuate over the life of a loan depending on market conditions and the index to which they are linked. Many refinance lenders recalculate the rates every month for borrowers with variable rate loans, but they usually limit the rate up to 18%, for example.
Refinancing an existing loan of $ 20,000 into a five-year loan at an interest rate of 3.04% would result in a monthly payment of approximately $ 360. A borrower would pay $ 1,584 in total interest over the life of the loan. But because the rate in this example is variable, it may go up or down from month to month during this time period.
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Compare Student Loan Refinance Rates
For most borrowers, the primary motivation for refinancing student loans is to reduce the amount of interest they will pay. This means that choosing the lowest possible interest rate is a top priority.
While variable rates may start out low, they could go up in the future, which makes it a gamble. But one way to limit your exposure to risk is to pay off your new refinance loan as quickly as possible. Keep the loan term as short as possible and pay extra if possible so that you are not subject to possible rate increases in the future.
When considering your options, compare the rates of several student loan refinance lenders to make sure you don’t run out of potential savings. Find out if you qualify for additional interest rate reductions, possibly by choosing automatic payments or by having an existing financial account with a lender.
When to refinance student loans
Most lenders require borrowers to graduate before refinancing, but not all, so in most cases, wait to refinance until you graduate. You will also need a good or excellent credit score and a stable income in order to access the lowest interest rates.
If you don’t yet have enough credit or income to qualify, you can either wait and refinance later or go with a co-signer. The co-signer you choose should know that they will be responsible for making the student loan repayments if you can’t anymore, and that the loan will show up on their credit report.
Finally, make sure you can save enough money to justify refinancing. At today’s rates, most borrowers with high credit scores can benefit from refinancing. But those with not very good credit and who will not receive the lowest fixed or variable interest rates may not be. First, explore the rates at which you could prequalify through multiple lenders, then calculate your potential savings.
Other features of student loan refinancing to consider
A crucial caveat to remember is that refinancing federal student loans into a private loan means you will lose many of the benefits of federal loans, such as income-based repayment plans and generous deferral and deferral options. abstention.
If you’re thinking about refinancing federal student loans, first make sure that you probably won’t need to use any of these programs. This can be the case if your income is stable and you plan to pay off a refinance loan quickly. You still have the option of refinancing only your private loans, or only a portion of your federal loans. Since the fixed interest rates on federal loans are usually quite low, you may also decide that refinancing would not lead to substantial savings.