Could Refinancing Your Student Loan Save You Money?
Student loans help millions of people each year enter higher education. Tuition fee loans and maintenance loans are the two main forms of government-backed finance for higher education. Official figures show more than £17billion is loaned to around 1.3 million students in England each year1. But on top of this, some students choose to borrow money from a private lender to help support them financially while studying.
For anyone who has done this, and is still repaying their loan, you may find you are forking out more than you need to be. If you are in a better position financially than you were when you took out your loan and have a stronger credit record, then there is a good chance you’ll be able to find a better deal.
To help you decide whether refinancing your existing loan is a good option for you, we’ve answered some of the important questions you may have.
Why should I consider refinancing my student loan?
If you have borrowed from a bank or private lender in the past to help fund an undergraduate or postgraduate degree then you may be able to take out a new, cheaper loan to pay off the remainder of what you owe. This will depend on your credit history and your current employment profile as well as how it has changed in the time since your first loan application. If you are now considered to be more creditworthy than you were, taking out a new loan could secure you a lower rate of interest or lower monthly instalment depending on your objectives.
Can anyone take out a refinance loan?
If you have successfully completed your degree, are employed, and can demonstrate a healthy, responsible, and stable financial history, you will most likely be a strong candidate for student loan refinancing. At Lendwise, you can also apply for a refinance loan while studying for a postgraduate degree if you have secured employment which will commence after you graduate.
Will refinancing my loan save me money?
Taking out a loan with a rate of interest that is lower than what you are currently paying means you will save money. However, it’s important to review all the details carefully and against your objectives for refinancing before finalising a new loan agreement. For example, you may want to have a lower monthly repayment by extending the loan term in order to maximise your cash flow for other purposes. You should think carefully about this and think ahead: a longer loan term will mean that you could still end up paying more than you are currently. This isn’t always the case, however, and it will depend on the terms of the loan so remember to check the small print! For example, if you are refinancing with a Lendwise loan, there are no penalties for repaying your loan early, so even if you extend your loan term, it doesn’t necessarily mean you will pay more interest as you are not locked into the longer term.
What types of loans can be refinanced?
If you have an outstanding loan from a bank or private lender that was taken to help cover your tuition fees, maintenance or living costs, you may be able to look at refinancing it to help you save money. At Lendwise we refinance undergraduate and postgraduate loans, but you must have completed your degree or, for full-time students, have secured employment that commences after you graduate.
How do I decide where to go to refinance my loan?
As is the case with any form of credit, if you’re contemplating refinancing a loan then you should shop around to find the best deal. You may have more options open to you now if your credit history has improved since you took out your first loan. But bear in mind that the APR advertised might not be the rate that is offered to you, so find out if the lender allows you to do a ‘soft search’ to check what rate will be given to you. As well as comparing the terms of a potential new loan with your current credit agreement, it’s also important to find out about the lender to see what they will do to support you. Dedicated student finance platforms, like Lendwise, typically offer friendlier terms to students, fixed interest rates and no penalties for early repayments.
[1] Student loan statistics, House of Commons Library, 09 December 2020