May 2, 2022 – Lending Rates Rise – Forbes Advisor

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Refinanced student loan rates increased last week. Despite the rise, if you want to refinance your student loans, you can still get a relatively low rate.

For borrowers with a credit score of 720 or higher who prequalified in Credible.com’s student loan market from April 25 to April 29, the average fixed interest rate on a 10-year refinance loan was 4.59%. On a five-year variable-rate loan, the rate was 3.17%, according to Credible.com.

Related: Best Student Loan Refinance Lenders

Fixed rate loans

Last week, the average fixed rate on a 10-year refinance loan rose 0.02% to 4.59%. The average was 4.57% the previous week.

Fixed interest rates remain the same throughout the term of the borrower’s loan. This allows borrowers refinancing now to lock in a significantly lower rate than they would have received this time last year. This time last year, the average fixed rate on a 10-year refinance loan was 3.68%, 0.91% lower than the current rate.

A borrower refinancing $20,000 in student loans at the current average fixed rate would pay about $208 per month and about $4,977 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.

Variable rate loans

Average variable rates on five-year refinance loans fell last week to 3.17% on average from 3.31%.

Variable interest rates fluctuate over the term of a loan depending on the index to which they are linked and market conditions. Many refinance lenders recalculate rates monthly for borrowers with variable rate loans, but they usually limit how high the rate is – lenders can set a limit of 18%, for example.

Let’s say you refinanced an existing $20,000 loan into a five-year loan with a variable interest rate of 3.17%. You would pay around $361 on average per month. You would pay approximately $1,653 in total interest over the life of the loan. Keep in mind that since interest is variable, it can fluctuate up or down from month to month.

Related: Should You Refinance Student Loans?

When to Refinance Student Loans

Most lenders require borrowers to graduate before refinancing, but not all do, 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 your credit is low or your income is not high enough to qualify, you have several options. You can wait to refinance until you have accumulated credit or have sufficient income. Or, you can get a co-signer. Just make sure the co-signer knows that if you can’t repay your student loan, they will be responsible. The loan will show up on their credit report.

Before choosing to refinance, calculate your potential savings. It’s important to make sure you’ll save enough to justify refinancing. Shop around with multiple lenders for rates and consider your credit score when shopping. Keep in mind that those with the highest credit scores receive the lowest rates.

Refinancing of federal loans into private loans

There are a few things to keep in mind when refinancing a federal student loan into a private student loan. For starters, you will lose access to certain benefits offered by federal student loans. For example, you will no longer have access to income-tested repayment plans or deferment and forbearance options.

If you’re considering refinancing federal student loans, make sure first that you probably won’t need to use any of these programs. This may be the case if your income is stable and you plan to pay off a refinance loan quickly. You always have the option of refinancing only your private loans or only part of your federal loans. Since fixed interest rates on federal loans are usually quite low, you may also decide that refinancing would not lead to substantial savings.

Get the best rates

One of the primary goals of student loan refinancing, for many borrowers, is to reduce the amount of interest paid. And that means getting the lowest interest rate possible.

Variable rates usually start low, but could go up in the future, making 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 when possible so that you are not subject to any rate increases in the future.

When considering your options, compare rates from multiple student loan refinance lenders to ensure you don’t miss out on possible savings. Determine if you qualify for additional interest rate discounts, possibly by choosing automatic payments or having an existing financial account with a lender.

About Kimberly Alley

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