In the lending industry, the student loan is one of the loan programs that take a major fraction of the entire budget. Even the government is looking for ways on how to make student loans more attractive, which means having the lowest rate possible.
Refinancing your student loan is an effective option when you want to have another loan but you have an existing loan. In such case, you are looking for another lender who will take out your old or current loan with a lower rate and a lower monthly payment. When the lender paid your old debt, such payment will be deducted from your loan amount, and whatever is left will be given to you.
How Does Refinancing Loan Work?
The first thing to do when you consider refinancing is to inquire from your current loan provider whether they offer refinancing. That is, if you also want to remain with your current lender because it can be viable. If not, then you start looking for lending companies that offer refinancing to both federal and private loan (whichever type of current loan you have) and ask for their interest rate, which must be lower than your current loan. Otherwise, you will not get the benefit of savings. The key to refinancing is to have a lower monthly payment, and this is only possible if the refinancing loan charges at a lower interest rate.
After finding the lending company, you go through their process which includes complying with requirements such as verification of your actual loan and statement, proof of income and identification, and to undergo a credit score check.
In refinancing your student loan, your credit score is an important factor because it is one of the reasons the lender will rely on to give you a lower interest rate. Your income, too, must be consistent to give an impression that you are able to pay monthly dues.