If you have made the decision to consolidate or refinance your student loans, it is critical that you look around to find the best interest rate. A couple hours of extra work could save you hundreds of dollars a month and thousands of dollars over the life of the loan.
The Key: Cast a Wide Net
The company that advertises the best interest rate may not offer you the best interest rate. The student loan consolidation companies all have different systems for evaluating your credit. Some may give more weight to credit score, while others look closer at deb-to-income ratio. These exact formulas are the tools these lenders use to make money, so they are pretty closely guarded. What this means for you is that you will not know what company has the best deal until you submit an application.
The good news for you is that lenders make the application process simple (if it was too hard they wouldn’t get any business). Additionally, the credit agencies treat 10 applications the same as one application for purposes of your credit score. This means you can shop around without it hurting your credit score. The key is that the shopping around take place within a short period of time. Some credit reporting companies will treat applications within 30 or 45 days as shopping around, but we suggest you keep it within 14 days to be safe.
As far as finding student loan consolidation companies we have put together a list of all the major national lenders. Pick at least 3 or 4 lenders to send in applications. Remind yourself that the little bit of extra work you do now can save a bunch of money in the future.
Be Smart About Your Timing
The student loan refinancing companies are in business to make money. They may put on a friendly face, but if they don’t think that you are a safe bet to repay the loan, they won’t lend you any money.
If you are a month or two away from paying off a credit card or a car loan, hold off until this debt is wiped away. It can be a big boost to your debt-to-income ratio. This can mean the difference between an approval or a denial. It can also mean the difference between qualifying for the lowest rate or a higher interest rate on your loan.
Similarly, if you are on the brink of a new job or a raise, wait until it becomes official. The added income will also improve your debt-to-income ratio.
Don’t Go All In
You are under no obligation to refinance all of your loans together. Many people choose to consolidate only their private loans, leaving the federal loans and federal benefits intact. Similarly, others choose to consolidate only their high interest loans. If your current student loans are at 3%, 6%, and 10% and you have the opportunity to refinance at 5%, leave the 3% loan out of it and just lower the higher interest rates.
Revisit Your Decision
Once you go through the process of shopping around and signing up for the best loan, don’t be afraid to revisit the issue in the future. If your circumstances change and you think you will qualify for a better interest rate, give it a try. Unlike mortgages where there are transaction costs associated with refinancing, student loan consolidation is free of charge. It just costs you a bit of your time.
Don’t Miss Out on a Bonus
Finally, many lenders have bonus programs to attract new borrowers. At the time of this article, SoFi was offering new customers $150, and LendKey was offering new customers $100. On our list of lenders and reviews page we will track the latest lender promotions.
One last advantage of shopping around is that it gives you the opportunity to interact with a number of different lenders. If they are slow to respond to questions or treat your poorly, odds are pretty good that you will get the same treatment as a customer.
You are considering giving this company a large amount of business. If they don’t earn it, go elsewhere. There are a lot of lenders out there and there is no reason to work with someone that doesn’t earn your trust. This is one of the few times in the world of student loans that the borrower is in control, so be sure to take advantage of that opportunity.