July 11, 2022—Lending Rates Drop Slightly – Forbes Advisor

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The average interest rate on refinanced student loans fell last week. For many borrowers, that means rates continue to be low enough to make refinancing a winning option.

From July 4 to July 8, the average fixed interest rate on a 10-year refinance loan was 5.34% for borrowers with a credit score of 720 or higher who prequalified in the student loan market from Credible.com. On a five-year variable-rate loan, the average interest rate was 3.23% among the same population, according to Credible.com.

Related: Best Student Loan Refinance Lenders

Fixed rate loans

The average fixed rate on 10-year refinance loans last week fell 0.00% to 5.34%. The previous week, the average was 5.34%.

Fixed interest rates do not change during the term of a borrower’s loan. This allows borrowers refinancing now to lock in a significantly lower rate than they would have received this time last year. This time last year, the average fixed rate on a 10-year refinance loan was 3.65%, 1.69% higher than the current rate.

A borrower refinancing $20,000 in student loans at the current average fixed rate would pay about $215 per month and about $5,856 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.

Variable rate loans

Average variable rates on five-year refinance loans fell last week to 3.23% on average from 3.23%.

Unlike fixed rates, variable interest rates fluctuate over the life of a loan depending on market conditions and the index to which they are linked. Many refinance lenders recalculate rates monthly for borrowers with variable rate loans, but they usually limit the height of the rate, to 18%, for example.

Refinancing an existing $20,000 loan to a five-year loan at an interest rate of 3.23% would yield a monthly payment of approximately $361. A borrower would pay $1,685 in total interest over the life of the loan. But since the rate in this example is variable, it can go up or down from month to month during this period.

Related: Should You Refinance Student Loans?

Student Loan Refinance Rate Comparison

For most borrowers, the primary motivation for refinancing student loans is to reduce the amount of interest they will pay. This means that choosing the lowest possible interest rate is a top priority.

While variable rates may start low, they could rise in the future, making it a gamble. But one way to limit your exposure to risk is to pay off your new refinance loan as quickly as possible. Keep the loan term as short as possible and pay extra when possible so that you are not subject to any rate increases in the future.

When considering your options, compare rates from multiple student loan refinance lenders to ensure you don’t miss out on possible savings. Determine if you qualify for additional interest rate reductions, possibly by choosing automatic payments or having an existing financial account with a lender.

When to Refinance Student Loans

Most lenders require borrowers to graduate before refinancing, but not all do, so in most cases, wait to refinance until you graduate. You will also need a good or excellent credit score and a stable income in order to access the lowest interest rates.

If you don’t yet have enough credit or income to qualify, you can either wait and refinance later or use a co-signer. The co-signer you choose should know that they will be responsible for making student loan payments if you can’t and that the loan will show up on their credit report.

Finally, make sure you can save enough money to justify refinancing. At current rates, most borrowers with high credit ratings can benefit from refinancing. But those with less than excellent credit who won’t receive the lowest fixed or variable interest rates may not be able to. First, explore the rates you could prequalify for through multiple lenders, then calculate your potential savings.

Other Student Loan Refinance Features to Consider

A crucial caveat to remember is that refinancing federal student loans into a private loan means you’ll lose many of the benefits of federal loans, like income-driven repayment plans and generous deferment and forbearance options. .

If you’re considering refinancing federal student loans, make sure first that you probably won’t need to use any of these programs. This may be the case if your income is stable and you plan to pay off a refinance loan quickly. You always have the option of refinancing only your private loans or only part of your federal loans. Since fixed interest rates on federal loans are usually quite low, you may also decide that refinancing would not lead to substantial savings.

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