While recent times have been riddled with economic uncertainty, it’s not all bad news on the financial front. Some say that now may even be the best time to refinance student loans.
There are several reasons why scary economic times may be the right time to make big financial moves. For one, current market rates are the lowest they’ve been in decades. Given that Americans collectively owe over $1.6 trillion in student loans, this is reason enough for borrowers to start exploring when to refinance student loans and other financial offers.
How market rates impact student loan refinance rates
There are several reasons why the federal government’s ruling on interest rates matter — especially to borrowers. Fed rates have the power to affect the consumer on a number of levels. So, how does it work?
Typically, the Federal Open Market Committee (FOMC), which is appointed by the government to maintain a stable financial system, meets eight times per year to set the Fed rate. The committee takes into account a wide range of factors, including things like employment rates and inflation data. If the economy slows, the Fed may lower interest rates to spur economic growth by incentivizing businesses and consumers to spend more. While the Fed rate isn’t the sole indicator of private lender rates, it certainly plays a significant role. Still, for borrowers, now is a great opportunity to make those long-awaited financial moves like refinancing student loans.
When is the best time to refinance student loans?
It may come as no surprise that lower student loan rates mean more money in your pocket. This is because the more money you save on interest, the more money you have for discretionary spending.
Market rates have a profound impact on student loan refinancing rates. To help Americans financially recover from the havoc caused by the Covid-19 pandemic, the Federal Reserve has implemented historically low interest rates, making it easier for borrowers to consolidate and refinance their private student loans.
When to refinance student loans
“When should I refinance student loans?” is a common question students ask themselves after graduation. The truth is that now is the best time to refinance student loans. Doing so through one of the top student loan refinance companies can provide plenty of opportunities to save big with record low refinance rates that can significantly affect your financial standing.
While it may be, overall, a good time to refinance student loans, now may or may not be the ideal time for you. In order to refinance, you’ll need to have a decent credit score, which helps top student loan refinance companies offer lower rates. Your income also plays a role in deciding when to refinance student loans. When it comes to refinancing, banks often approve borrowers with a credit score of around 650.
If you don’t meet this threshold, consider enlisting the help of a cosigner. A creditworthy cosigner can go a long way in helping you get the refinancing rate you need to improve your financial standing. Ironically, lower student refinancing rates can also help you lower your credit score over time, which has endless benefits in regard to your financial future.
Improving your credit score for refinancing
Refinancing student loans can be a long process if you’re not in good financial shape. If you don’t qualify for student loan refinancing now, don’t be discouraged. There are things you can do to improve your chances for approval in the future. One of these is to take steps to improve your credit score on your own.
Some things you can do to improve your credit score include making payments on time every month, paying down your debt faster, and transferring balances where possible. Transferring credit card balances to other low-interest accounts is a commonly used tactic that can save you money in the long run, as well as improve your credit score over time.
Generally, building up an excellent credit score means keeping balances low and paying on time and in full each month. Credit utilization ratio, which signifies the percentage of credit you are using, also plays a significant role in one’s credit score. As a general rule of thumb, it’s advised that borrowers maintain a credit utilization ratio of no more than 30%.
There are steps you can take to decrease your credit utilization ratio, like raise your credit limits. This isn’t advised if you have a problem with over-spending but is a sensible option for those trying to improve their credit utilization ratio. Increasing your credit limit requires you to contact your credit card company and request they make this change for you. But be aware: lenders are under no obligation to approve your new credit line request. You will still need to prove that you are worthy of a credit line increase.
Other routes you can take toward a higher credit score include making additional payments during months that require more use of your credit card, such as in the event of a large, unforeseen expense. The sooner you can get back on track with paying off your cards in full each month, the sooner you’ll see an improvement in your credit score.
Finding your best student loan refinance rate
Refinancing student loans is a straightforward process with Purefy. You can start shopping around by using our Compare Rates tool to evaluate your options. By looking carefully at different loan rates and lenders, you’ll have a fair shot at making wise financial decisions that will positively impact your future.
With these trying times wreaking havoc on so many areas of life, student loan refinancing may help you decrease your financial stress and embark on a new, hopeful beginning.