January 31, 2022—Lending Rates Rise – Forbes Advisor

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The average interest rate on refinanced student loans jumped last week. For many borrowers, rates remain low enough to make refinancing a good option.

For borrowers with a credit score of 720 or higher who prequalified in Credible.com’s student loan market from January 24-28, the average fixed interest rate on a 10-year refinance loan was $3 .64%. On a five-year variable-rate loan, the rate was 3.45%, according to Credible.com.

Related: Best Student Loan Refinance Lenders

Fixed rate loans

Last week, the average fixed rate on a 10-year refinance loan jumped 0.08% to 3.64%. The average was 3.56% the previous week.

This time last year, the average fixed rate on a 10-year refinance loan was 3.83%, or 0.19% higher than the current rate. This means borrowers who refinance now have the option of receiving a significantly lower rate than they would have received this time last year.

A borrower refinancing $20,000 in student loans at the current average fixed rate would pay about $199 per month and about $3,890 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 rose last week from an average of 3.41% to 3.45%.

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 3.45% interest would yield a monthly payment of approximately $363. A borrower would pay $1,803 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

One of the primary goals of student loan refinancing, for many borrowers, is to reduce the amount of interest paid. And that means getting the lowest interest rate possible.

Variable loan rates may initially be lower than fixed rate loan rates. Of course, because they are variable, they are subject to increases in interest rates. You can limit the risk of rising interest rates with variable rate loans by paying off your loan as quickly as possible. Still, if you like the reliability of a fixed payment, fixed rate loans might be a better choice.

Whether you choose a fixed or variable rate loan, it’s important to compare rates from multiple lenders to make sure you don’t miss out on any savings. You may qualify for interest rate discounts by opting in to automatic payments or having an existing relationship 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.

Using a co-signer is an option for those who do not have sufficient credit or income to qualify for a refinance loan. Alternatively, you can wait until your credit and income are stronger. If you decide to use a co-signer, make sure they are aware that they will be responsible for payments if you are unable to do so for any reason. The loan will also show up on their credit report.

Before choosing to refinance, calculate your potential savings. It’s important to make sure you’ll save enough to justify refinancing. Shop around with multiple lenders for rates and consider your credit score when shopping. Keep in mind that those with the highest credit scores receive the lowest rates.

Refinancing of federal loans into private loans

There are a few things to keep in mind when refinancing a federal student loan into a private student loan. For starters, you will lose access to certain benefits offered by federal student loans. For example, you will no longer have access to income-tested repayment plans or deferment and forbearance options.

You may not need these programs if you have a stable income and plan to pay off your loan quickly. But be sure you won’t need these programs if you plan to refinance federal student loans.

If you need the benefits of these programs, you can refinance only your private loans or only a portion of your federal loans.

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