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Carol Yepes/Getty Images November 07, 2022 Hanneh Bareham specializes in everything related to student loans and helping you finance your next educational endeavor. She aims to help others reach their collegiate and financial goals through making student loans easier to understand. Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Bankrate logo The Bankrate promise
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is when the unpaid interest on your loans accrues and gets added to your principal balance. Capitalization commonly occurs when you have multiple student loans with high rates and can add years to your repayment timeline. Interest rates on private loans tend to fall around on the high end and are typically between 2 and 3 percent for the . The rates will vary depending on whether the loans are fixed or variable and your financial health. Variable vs fixed interest rates
Variable rates are and fluctuate based on market activity. Fixed rates remain the same from the moment you get approved to the day you pay off your full balance. The Federal Reserve has been at historic levels in an attempt to cool off the over-inflated economy. As a result, any new private loans will see , as well as existing private loans with variable interest rates. Before refinancing, take a look at your original rate and loan type. If your original loan has a variable rate and the refinance loan has a lower, fixed rate, you should consider refinancing as soon as possible in the case that the Fed hikes interest rates again in the near future. Financial health
The rates you’re given are based on your creditworthiness and overall financial health. If you currently have a debt-to-income ratio , have a positive payment history on your debts and have a good credit score (between ), you could stand a good chance of scoring a lower rate. The lender offers prequalification
Prequalification is a tool offered by most private lenders that allows you to see your eligibility odds and predicted interest rate with no impact to your credit score. If a lender features prequalification, the tool will be featured on its website and is an online process. Many lenders advertise a simple application process that takes minutes to process so you can easily compare lenders. Plus, it can help you avoid failed applications and hard credit checks. If you’re in good financial health but the lender doesn’t offer prequalification, it may be better to shop around. With interest rates high, it’s possible that you could end up with higher rates and less favorable terms. You want to change your payment timeline
If you’re having trouble making your loan payments, refinancing can help make your monthly payments more manageable through altering the repayment period. With most lenders, you can choose to lengthen your repayment timeline to lower your monthly payment requirements. While this method provides short-term financial relief, keep in mind that you’ll end up paying more interest over the lifetime of your loan. How to refinance private student loans
The refinance process will vary from lender to lender, but generally will operate similarly to the private student loan application process. The first thing you’ll need to do is compare lenders to find the best rate available and then complete the application process once you find a lender who meets your needs. The lender will then be in touch with you regarding the status of your loan and repayment term. Keep paying your original loans during the application process so you don’t fall behind and be on the lookout for any information from the new lender. How to refinance your loans with bad credit
The easiest way to refinance your student loans with bad credit is to enlist the help of a co-signer, or a trusted person in good financial health who also takes legal responsibility for the loan. Creditworthy co-signers increase your approval odds and can help you land a better interest rate. But it’s important to consider your ability to make the payments and the potential negative implications that co-signing could have on your relationship before asking. There are also lenders that cater primarily to and those with a less-than-stellar financial history, but most of the lenders require a good credit score at minimum and often come with higher rates. You’re more likely to qualify with a lender that offers future-income or need-based approval, but you also could end up with a higher interest rate than before. If you’re in a bind and need to lower your payments as soon as possible, ask your lender about any of its hardship payment relief options. If none are available, make at least the minimum payments to avoid defaulting on your balance. A majority of your credit mix is your payment history, so over time making at least the minimum will help and increase your creditworthiness. How to refinance private student loans to federal
Private student loans are owned by private lenders — banks and credit unions — while federal loans are owned by the Education Department. Private loans with a federal loan, but federal loans are always refinanced with a private student loan. Multiple federal loans can also be consolidated into a federal Direct Loan to gain eligibility for federal debt relief and forgiveness programs, like (PSLF) and (IDR). However, private student loans aren’t eligible for any form of federal consolidation. SHARE: Hanneh Bareham specializes in everything related to student loans and helping you finance your next educational endeavor. She aims to help others reach their collegiate and financial goals through making student loans easier to understand. Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Related Articles