Borrowers who have waited too long and missed record-breaking student refinance rates a few weeks ago have more reason to smile.
Interest rates on 5-year variable loans and 10-year fixed loans fell last week, according to a refinancing survey from one of the largest loan markets.
Considering the size of a typical student loan, even a slightly lower rate can make a big difference in the amount of money you lose in interest.
And with an average 10-year fixed loan just 0.07 percentage points from the all-time low, borrowers still have a historic opportunity to cut the cost of their debt by hundreds or thousands of dollars.
5-year variable rate loans
For those looking to pay off their student loans faster, 5-year variable rate loans currently average 2.95%.
This is down slightly from 3.07% the previous week, according to the survey, but it is also up sharply from the record low of 2.53% reached a few weeks ago at the end of August.
It is important to note that these numbers are only an average, especially for borrowers with a credit score of at least 720. Better rates are available for people with excellent credit.
Borrowers with scores above 780 have average rates of 2.67%. In contrast, people with average scores (between 640 and 679) average 4.59%.
Also, keep in mind that variable rates fluctuate based on market conditions, which means borrowers may end up paying more than they expect after refinancing.
10-year fixed rate loans
For borrowers keen to get a good deal, 10-year fixed rate loans averaged 3.49% last week.
This is a very slight drop from the previous average of 3.50%, but it is welcome. Rates are now incredibly close to their all-time low, which was 3.42% on August 30.
Again, those with great credit qualify for better rates, averaging around 3.44%. Those with unimpressive scores could suffer rates as high as 4.77% or worse.
Refinancing to a fixed rate loan usually won’t save you as much as a variable rate, but your interest rate is guaranteed not to increase during the life of the loan.
A 10-year loan will also offer much more manageable monthly payments than a 5-year loan, although you will be spending more money overall by the time your debt is paid off.
How to get the best refi rate
If you have a federal student loan, make sure you know what you’re giving up before you jump into a refi.
Switching from a federal loan to a private loan will make you ineligible for the kind of government support some borrowers received during the pandemic, including freezing payments, waiving interest, and even canceling the loan.
But if you already have a private loan or are happy with the compromise, refinancing at a significantly lower rate can make a huge difference in your budget. Here are some tips to help you get the best rate possible:
Improve your credit score. Lenders look at your credit score to determine how responsible you are for your money. Take a free look at your online score and consider taking steps to improve it. A free credit monitoring service can offer you some tips, including ways to get rid of your other debt faster.
Configure automatic payment. Many lenders offer a small percentage of your interest rate while you’re signed up for automatic payment. It guarantees that they are paid on time every month.
Consider a co-signer. If your credit score isn’t good enough to get a better rate, you can ask a friend or family member with good credit if they’re willing to co-sign your loan. Be careful, whoever co-signs will be responsible for your payments if you can’t afford to pay.
Compare your options. The world of student loans is big, with dozens and dozens of lenders. The only way to know you’re getting a good deal is to shop around. Different lenders will rate the factors in your application differently, so always get multiple quotes before clicking apply.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.