Getting out of the quicksand of student debt just got easier, thanks to lower rates on economic refinancing.
Five- and ten-year refi loans remain in the vicinity of their recent all-time lows, new figures from a major lending market show.
Because the typical borrower carries tens of thousands of dollars In student loan debt, any downgrade can make a big difference in what you pay in interest, both on a monthly basis and over the long term.
5-year variable rate loans
For borrowers looking to pay off student debt faster, five-year variable rate loans average 2.60%, according to data released this week by the Credible market.
That’s not far from the previous week’s record low average rate of 2.48%.
The average is specifically intended for borrowers with a credit score of at least 720. Lower rates are available for people with exceptional credit of 780 or more.
At the other end of the scale, people with average scores (between 640 and 679) have typical rates of 4.59%.
Keep in mind that variable rates can fluctuate based on market conditions, which means that a borrower could end up with a higher rate before the end of the five-year term of the loan.
10-year fixed rate loans
For borrowers who want lock up a good deal over a longer repayment period, 10-year fixed rate loans average 3.44%.
That’s slightly up from the 3.39% average a week earlier, and still pretty close to the all-time late September low of 3.36%.
Again, people with great credit are entitled to lower than average rates. And those with unimpressive scores may have to accept a higher rate, typically 4.77%.
Although fixed rate loans usually come with higher borrowing costs than their variable rate cousins, your interest rate is guaranteed to stay stable throughout the life of the loan.
A 10-year loan will also offer more affordable monthly payments than a five-year loan, although you will be spending a lot more money on interest when your debt is paid off.
How to get the best refi rate
If you have a federal student loan, make sure you know what you might be giving up before you jump into a refi.
Switching from a government loan to a refinance loan – offered only by banks and other private lenders – will make you ineligible for the kind of government support that some borrowers received during the pandemic, including payment freezes, interest waivers and even loan cancellation.
But if you’re okay with that compromise, or if you already have a private loan, refinancing at a cheaper rate could make a huge difference in your payments.
Here are some tips to help you get the best possible refi rate:
Improve your credit score. Lenders examine your credit to determine if you are a good risk. Today it is easy to check your credit score for free, then take steps to beautify it so that you look more impressive in the eyes of a lender.
Configure automatic payment. Often, you can lower your interest rate a bit by agreeing to make automatic payments. This gives the lender some assurance that you will pay on time each month.
Consider a co-signer. If your credit score is 200 points south of where it should be, you may need to ask a friend or family member with good credit if they would be willing to co-sign your loan to help you get a better rate. But be careful, because your co-signer will take care of making your payments if you ever become incapable.
Compare your options. The universe of student loans is vast, made up of dozens and dozens of lenders. The only way to know you’re getting a good deal is to shop around. Different lenders are required to weigh your claim differently, so always get multiple quotes and size them side by side before clicking “Apply”.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.