What Makes a Good Lender?
When you first took out your student loan it was with the federal government or a private lender your school recommended, so you signed some paperwork and just like that the money was in your account! Now that you have decided to refinance you need to choose a different lender out of many - where do you start?
First off, when you refinance you are taking existing debt from your current lender and “paying it off” by getting debt from a new lender. For a refinancing, you will only consider private lenders such as online lenders, local banks, national banks, and credit unions.
It’s always a good idea to shop around before you decide on a lender to refinance your loan with, as you could potentially be working with this lender for the next five to twenty years. Below we’ve highlighted some of the top questions people ask when choosing a student refinancing lender. You can also check out our student debt refinancing marketplace for more details on different lenders.
What type of interest rate is the lender offering?
Interest rates can be variable, fixed, or hybrid (a mix of both). It’s important to understand the type of interest rate, the number, and the length of the loan associated with it (term). Some lenders also offer a discount if you sign up for autopay or open a bank account with them, so it’s important to understand how these can lower your rate as well.
What type of terms does the lender offer?
The term (or length of the loan) usually ranges from five to twenty years (in increments). Certain lenders may offer more options. Once you decide on your current student debt, interest rate, and term you will be able to calculate your student loan payoff amount (how much you will pay in total both for the loan and interest over the life of the loan) and your monthly payments. This will help you figure out whether the monthly payments are affordable for you.
What is the minimum requirement for the lender?
Each lender has specific requirements for borrowers, and this may include loan minimum and maximum size, type of loan, your income, your credit score, degree and institution which you graduated, etc. It’s important to find out what the requirements are so you know which lenders you can consider.
If it’s important to you, does the lender offer flexible repayment options?
When you refinance you are losing federal protections and benefits in case you can’t make your payments or want more flexible payment options. Some lenders may offer some of these protections, but in a more limited capacity. These might include:
- Forbearance or deferment programs (e.g., returning to school, military)
- Option to make bi-weekly payments to potentially lower interest over lifetime, pay interest only over a certain period (e.g., first two years), or skip a payment to make it up over lifetime of loan
What is the customer service and reputation of the lender?
You should try to find online reviews or actual friends who have refinanced with the lender to find out their experience (especially during times when they might not have been able to make payments). Also, some lenders might provide servicing in-house (vs. outsourcing it to another provider) which might make the customer service experience better.
What are costs for this lender?
And finally, you should make sure to understand other costs such as origination (fee for processing an application), late fees, and other fees (e.g., insufficient funds fee if payment is returned). Most reputable lenders will not charge an origination fee, but you should double check with the lender you choose. It’s also important to know that if you prepay your student loans at any time you should not be charged a prepayment fee or be responsible for interest that has not been accrued (per the Higher Education Opportunity Act of 2008). You should be extremely cautious of any lender that claims to charge you for this.