If you find yourself with a burdensome, stressful loan, you may be considering refinancing this loan to get a better deal on interest rates and a more manageable repayment plan. Refinancing a loan is essentially the act of taking out a new loan with different terms to relieve yourself of high interest rates you may have gotten stuck with when signing up for your original loan. If your financial situation has changed, your credit score has improved, or if the economic climate has shifted since your original loan, you’ll almost certainly be able to save some money by refinancing at a less demanding rate.
Refinancing works slightly differently depending on the type of loan (or loans) you may have. Below, we’ve outlined some of the most commonly refinanced loans and some things you should be aware of when considering your options.
One of the most frequently refinanced loans is a student loan. If you find yourself several years out of college, but still sacrificing a large portion of your wages to your seemingly endless student loan, you’re certainly not alone. Federal and private student loans alike tend to come with extortionate interest rates that make it very hard to pay them off quickly or easily. In fact, there are currently almost 6 million Americans over 50 still trying to pay off their student loans. It makes sense for a lot of people to refinance their student loans. Companies like Elfi.com will save you an average of $20,000 with their low fixed and variable interest rates. Refinancing your student loan is definitely something to consider if you have a good credit score and a steady job. However, do bear in mind that you’ll potentially lose some benefits (such as loan forgiveness) if you do choose to refinance.
Refinancing your mortgage works in a very similar way to a student loan refinance. You’ll get a new loan, with new rates to pay off your debts. Refinancing your mortgage may help you lower your monthly payments by giving you a lower interest rate or by lengthening the loan term, giving you more to pay the full amount. You may also have the opportunity to opt for a cash-out refinance, where you borrow more than the original loan amount, meaning you’ll get a check for the difference, and ideally, a lower interest rate. This is an option often used by those in need of some extra, immediate money. If you’re considering refinancing your mortgage, always use a mortgage refinance calculator to make sure you aren’t paying too much extra in the long term.
A third common loan to refinance is a car loan. While this option is incredibly similar to a home loan refinance, it’s overall a simpler process. This is a good option if you’re looking for ways to cut down monthly spending or get some extra cash, but don’t want to go through the arduous process of a mortgage refinance. Refinancing your car doesn’t require as many fees or appraisals.