Why do some people refinance their student loans more than once
Student loan refinancing involves a private lender paying off some, or all, of an individual’s existing loans and providing a new loan with new terms. If you already refinanced your student loans, you may wonder if there’s any benefit to refinancing them again.
A lower interest rate is one of many reasons why some choose this option. It’s helpful to know all the benefits to decide if refinancing your student loans again is the best option for you.
1. Lower interest rate
One reason why some people decide to refinance student loans again is to find a lower interest rate. If the interest rate is better, your monthly payments will likely be lower, depending on the terms.
If your credit score has improved or interest rates have decreased, it may be a good time to consider refinancing. Be mindful that a low interest rate tied to a long-term loan may mean you’ll pay more in interest over the life of the loan.
2. More cash flow
Another reason you might want to refinance again is if you need more cash flow in the near term. You can choose to refinance your loan for a longer term with lower monthly payments. That allows you to have more cash available on a monthly basis so you can better meet your short-term financial goals.
3. Switch interest type
In some cases, refinancing might give you the option to switch the type of interest rate you have. A fixed interest rate means your rate will be the same over the life of the loan. You’ll have predictable monthly payments and total costs. A variable interest rate means your rate will fluctuate based on a changing index.
Refinancing a variable rate loan to switch to a fixed rate is helpful if you prefer less uncertainty. Refinancing to switch to a variable rate can be helpful if you want a lower initial rate that may allow you to pay off the loan faster. It’s important to remember that while the rate is typically lower initially, variable rates can get higher than fixed rates if the index goes up in the future.
4. Release your cosigner
It’s possible that through refinancing, you can release your cosigner from having any responsibility for your loan. As a result, your cosigner may have more flexibility to pursue other loans or financial goals.
5. Consolidate your student loans
Having multiple federal or private student loans can be complicated to keep up with. Refinancing again may give you the option to consolidate all your loans. Instead of having multiple payments every month, you can simplify to one payment.
Be mindful that you shouldn’t choose to refinance just to consolidate your student loans. You should only consider refinancing if, in addition to consolidating, you’re also getting a better loan term or a lower interest rate.
Remember that whenever you refinance your student loans, lenders will do a “hard” credit check. Keep in mind that too many hard credit checks can lower your credit score over time. Overall, if it can save you money or give you a more manageable payment, it can be a good financial move to refinance your student loans again.