2021 NerdWallet Best-of Awards Winner for Best Student Loan Refinancing Overall Read More
2021 NerdWallet Best-of Awards Winner for Best Student Loan Refinancing Overall Read More

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Step-By-Step Guide: How to Get the Lowest Student Loan Refinance Rates

Kat Tretina
How-to-Get-the-Lowest-Student-Loan-Refinance-Rates
How-to-Get-the-Lowest-Student-Loan-Refinance-Rates
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If you have high-interest student loan debt, you know what a pain interest charges can be. With sky-high interest rates, your loan balance can balloon, making it seem like you’ll never pay off your debt.

Student loan refinancing is an effective, smart strategy for paying off your debt if you can qualify for a competitive interest rate.

Ready to learn how to get the lowest student loan refinance rates? Here’s everything you need to know about student loan refinancing factors that impact your interest rate and what you can do to get the best deal.

How to pay off student loans: 7 ways to refinance and get the lowest APR

When you refinance your student loans, you work with a private lender to borrow enough money to pay off your existing debt. The new loan has completely different repayment terms than your old loans.

Going forward, you’ll have just one lender with a different interest rate, monthly payment, and loan term. With good credit and stable income, you can qualify for a lower interest rate than you have now — and save thousands in the process.

If you’re planning on refinancing your student loans, use these seven tips to get the lowest interest rate possible and save the most money.

1. Review your credit report

When you apply for a refinancing loan, lenders will review your credit report to decide whether or not to issue you a loan. Before applying for a loan, make sure you review your credit report and look for any errors or inaccuracies that may affect your credit history.

Unfortunately, errors are common. According to the Federal Trade Commission, one in five people have errors on at least one of their credit reports. There may be fraudulent accounts opened under your name or inaccurate reports of late payments. These things can damage your credit, making you a less-appealing loan candidate.

You can review your credit reports from each of the credit bureaus for free from AnnualCreditReport.com. If you find any mistakes or errors, you can dispute them with each of the three major credit bureaus online:

2. Pay down existing debt

One of the biggest factors of student loan refinancing rates is your debt-to-income (DTI) ratio. Your DTI is the amount of monthly debt payments you have relative to your monthly income. Lenders generally look for candidates who have a DTI ratio of 43% or less. However, the lower your DTI ratio is, the better.

If you have multiple forms of debt, such as student loans, credit cards, and auto loans, you can improve your DTI ratio by paying down your debt. Paying off the balances of your smallest debt — such as your credit cards — will reduce your DTI ratio, helping you qualify for a lower interest rate.

3. Ask a friend or relative to cosign the loan

If your credit is less than perfect or if you have insufficient income, you can improve your loan application by asking a friend or relative to cosign the loan. A cosigner is someone with good to excellent credit and steady income who applies for the loan with you.

If you can’t keep up with the payments on the loan, the cosigner is responsible for making them, instead. Because a cosigner reduces the lender’s risk, having a cosigner increases your chances of getting a good interest rate.

4. Consider a variable-rate loan

When you refinance your loans, you can choose between a fixed-rate loan and a variable-rate loan. Fixed-rate loans have the same interest rate for the entire repayment period. By contrast, variable-rate loans tend to have lower interest rates than fixed-rate loans, at least initially.

If you want to pay off your loan as quickly as possible, opting for a variable-rate loan will help you secure the best interest rate. However, variable-rate loans fluctuate over time along with market conditions. To prevent the interest rate from increasing and costing you more money, focus on making extra payments to pay off your loans before rate increases occur.

5. Sign up for automatic payments

To get a lower interest rate, make sure you sign up for automatic payments. Besides ensuring you never miss a payment, signing up for autopay can also get you a discount.

Many lenders will lower your interest rate by 0.25%. Depending on your loan balance and remaining loan term, that discount can help you save hundreds over the length of your loan. 

6. Shop around for the best interest rate

If you decide that student loan refinancing is right for you, don’t go with the first lender you find.

Instead, comparison shop to get the best solution for your needs. Interest rates and terms can vary widely from lender to lender, so it’s a smart idea to compare offers from multiple lenders to find the lowest interest rate and best monthly payment option.

Purefy’s Compare Rates tool makes it easy and fast. You can compare rates from multiple top student loan refinance companies in one convenient spot with just one simple form — with no credit check needed.

7. Pick a shorter loan term

When it comes to student loan refinancing factors that impact your interest rate, your selected loan term is important. In general, the shorter the loan term, the lower your interest rate will be.

If getting the lowest rate is your goal, opt for the shortest loan term you can afford. The payments will be higher, but could save thousands of dollars in interest charges. And, you’ll get out of debt much earlier than if you decided on a longer loan term.

Refinancing your student loans with a low rate

Now that you know how to get the lowest student loan refinance rates, you can compare rates from lenders and be confident that you’re getting the best possible deal.

Still need help? Schedule a free student loan refinance consultation with Purefy — Nerdwallet’s 2019 award winner for Best Customer Service. We’ll talk about your options, give you personalized guidance on the application process, and provide essential information about available lenders.

Find savings from the best lenders with Purefy

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