Refinancing a student loan (or more of them) could be useful for many folks struggling to make regular, on-time payments. Getting another loan could help them consolidate their finances and move forward.
Before filling out any form, you should know how things are working. Actually you shouldn’t but you’ll be much better off learning a few tricks. This could help you get a lower rate, thus make your life at least a little bit easier. Here’s what we’ve got…
1. Check your credit
Your credit score may be one of refinancing criteria, but it doesn’t have to be. Nevertheless, your credit report will be checked so you better check it out yourself first — use myFICO, TransUnion or AnnualCreditReport.com for that. And if you find some errors — cause they do happen — contact each bureau individually and ask them for correction.
Related: How to Dispute a Mistake on Your Credit Report
“A bankruptcy or medical bills that have gone to collections will harm your chances of securing the best student loan interest rate, or even getting approved at all,” according to Amanda Wood, Director of Business Development at SoFi. She added that you can improve your credit score by decreasing debt in general, paying off overdue bills and start paying them [bills] as they’re due. Until you get your basic finances in order, it is best not to apply for refinancing, though.
Another word of advice – if you’re carrying too much balance on your credit card, see if you can cool your spending for a few months before applying for a new loan.
On the other hand, if you have a good credit history of paying off debt, you will be able to get a low rate to refinance your student loan.
2. Check your cost of living
Your ZIP code helps lenders determine your cost of living; they know that a small Midwestern town is way more affordable than San Francisco, and will act accordingly.
This isn’t something you can or want to control completely. Perhaps you like living in NYC and don’t want to move to a small town? If that’s the case, you’ll want to make sure all of your bills are paid in time, and not to carry too much debt. Otherwise, you may be rejected for refinancing or get a higher rate.
Another thing to consider is to tweak your lifestyle, and perhaps rent a smaller apartment, buy a smaller car, and choose a more affordable area of the city. Things like these could help you with that loan application.
3. Provide a complete history
Some lenders will ask you for specifics related to your education, and based on what and where you have studied determine the rate for you. Generally speaking, engineers and those who have studied at good schools get a better rate. And the same goes for folks with an advanced degree.
In addition, be sure to include all relevant work experience. “The longer you’ve been in the working world, the more knowledge and skills you’ve likely gained,” adds Wood. “This makes you very attractive as an applicant, because you look like someone who will continue to pay the bills.”
Related to that, if there is a job offer on the horizon, make sure the offer letter is included with your application.
4. List all your income
Beyond what you earn from your job, list all other sources of income, such as dividends, interest earned, bonuses, as well as extra cash you make from side gigs or Airbnb rental property. What you want is to present a higher number that will show the lender you can pay off the loan. This will require proof so make sure to have one readily available.
On the other hand, if you’re self-employed, wait until you’ve filed your taxes to apply for refinancing — this is the easiest way to prove the previous year’s income.
5. Be flexible
Those with multiple student loans, may opt to refinance only a few or just one of them to get a better rate. Expanding the scope of the loan is possible down the road when you will also be able to get a lower rate (presuming you act in a financially responsible manner).
Another way of being flexible involves including other people to the loan request. A co-signer could help you qualify for a better rate, or — based on your finances — get approved in the first place. This could be a close friend or a relative.
Also read: 7 Questions to Ask When Choosing a Lender to Refinance Your Student Loans
Bottom line
You can submit a refinancing loan without thinking about it or you could take a smarter route, one that involves going through this list, and one that will get you a lower rate. That way you may even find yourself with a little extra cash each month… to either increase your savings or to take a well-deserved vacation. It’s your call.
We suggest trying out SoFi for refinancing your student loan. They want to know their clients to provide them with the best deal possible. Heck, they have helped us writing this article. Check ’em out.