Paying back loans can be a tedious process, and after a while it’s easy to feel like you’ll be making the same loan payments month after month for the rest of your life. But did you know there’s an easy way to get a fresh start and a better repayment plan?
If you’re trying to whittle down your debt, refinancing your loans is a great way to save money and pay off those loans faster. By refinancing to a smaller interest rate, you could shave off hundreds or even thousands of dollars in interest.
If you’re considering refinancing your loan, you might be stumped by the process. How long does it take? Will it affect your credit? Is it even worth it? Read below to see what the process to refinance your student loans is really like and how LendKey can help you through it.
If you’re interested in refinancing, but aren’t sure how it will help you, here are some facts to consider.
Many people have student loans with high interest rates. When you pay your monthly bill, you pay both the principal and the interest.
The principal is how much you initially borrowed. The interest is the fee you pay to the lender in exchange for them lending you the money. Each person’s interest rate can vary based on who their lender is, when they took the loan out and what their credit history is like.
When you refinance the loan, you’re getting a new loan with a new lender for a new interest rate. People often refinance to get a lower interest rate because they’ll save money on their loan payments. Refinancing can also lower the amount you pay monthly, especially if your new loan has a longer term. If you refinance, you can also continue to contribute the same amount you were before and pay off your loan even faster.
Find a Rate Without Hurting Your Credit
LendKey recently started offering rates without pulling a hard inquiry on your credit report. Why is this important?
Any time you take out a loan or try to get a refinance offer, you risk hurting your credit score. This means that if you look at a variety of companies to get a quote, you might end up harming your reputation as a borrower. How does this work?
Normally, every time a lender accesses your credit report, you get a hard inquiry on that report. Hard inquiries can lower your score over time and often stay on your credit report for several years.
That’s why using a lender who doesn’t pull hard inquiries is so important. You don’t want to decrease your chances of getting a loan approved just by doing your due diligence. Plus, if you decide to get another loan in the future – like a mortgage – those hard inquiries can affect what kind of loan you’ll get.
Determine Your Risk Tolerance
Everyone has a different risk tolerance. What’s risk tolerance? It’s how much instability you’re comfortable with. When it comes to loans, you have to evaluate your risk tolerance before you know which loan is right for you. This is less of a math question and more of an introspective delve into your personality.
Risk tolerance factors include choosing a variable rate or a fixed rate, picking a longer-term loan instead of a short-term loan and more. If you’re risk averse, you likely don’t want to be in debt more than you have to. You also don’t want any surprises. Getting a fixed rate loan is crucial for risk-averse people who don’t want their monthly payments to change.
Picking a longer-term loan can be a sign of low risk tolerance. The longer your loan, the lower the payments will be. If you’re worried about future cash flow, having a smaller payment will make it easier to pay your debt if you lose become unemployed or have unexpected expenses.
If you’re comfortable with risk, a variable rate loan might make more sense to you. You can likely get a lower rate than a fixed rate loan, but it might change over time. For people who aren’t afraid of risk, make sure you can afford to make your payments no matter what the interest rate is. That way you won’t find yourself defaulting on your loan.
Picking a short-term loan can signify confidence in your ability repay the loan with higher monthly payments. This can be a good option for people who are both risk-tolerant and don’t want to delay their freedom from debt any longer than absolutely necessary.
Receive Your Instant Decision
Unlike many other lenders, LendKey lets you know automatically if you’ve been approved for a loan. This means that as soon as you fill out the application, you’ll get an instant decision. This beats waiting around for lenders to approve you, hoping the interest rates don’t increase.
If you’ve been approved, your next step will be to verify your identity. This includes taking a photo of your ID and answering some questions on the online form. You’ll also have to provide your current loan information, to ensure that you’re not getting a bigger or smaller loan than you need.
You’ll get final approval after all those documents are reviewed. If they need more information or have questions, customer service specialists will reach out to you.
Set Up Your New Loan
Once you agree to your new loan terms, LendKey will pay off the old loan and help you set up your new monthly payments. If you set them to pay automatically, you won’t have to worry about remembering to make your new payments.
You can also try to pay more than the minimum, ensuring debt freedom even faster. Many people will use an unexpected windfall, like an inheritance or tax return, to shave off a large chunk of what they owe.
Refinancing your loan is an important step to decreasing your payments, saving money on interest and paying off your debt. By taking this step, you’ll be empowering yourself to be more involved in your finances.
For more information on getting a loan at LendKey, feel free to contact us with any questions or concerns.