You need to refinance your student loan because you know it makes a lot of financial sense. In fact, when refinancing your student loan, the managing of payments becomes easier. But the problem is that you are not sure of the ways to get it approved. Nevertheless, you should not get into refinancing of your student loan before you are aware of a few preliminary steps just like Meet the Parents II and III, Zoolander I and II, and Jurassic World should not have been made before some preliminary checks.
Oh, they already were! Oh well!
What is refinancing of a student loan?
Refinancing of student loan means consolidation of the existing private and federal loan so that it could be consolidated into a new single loan which has a lower interest rate. The benefit is that you have to make lower monthly payments which in turn frees up some money that could be either saved or invested elsewhere.
What are the ways to get your student loan refinancing approved?
Almost all of you are aware of the fact that the criteria to obtain private student loan are pretty strict. This is because private lenders lend money at their own risk. They give loans to students believing that they have the capacity to repay the amount.
However, the lending criteria of one lender vary from the other and also the circumstance of the borrowers is also different from one another. Hence, when you apply for a student loan refinancing, the loan might either get rejected or approved. If it gets rejected you feel disheartened. So have a fair idea about the top 5 ways that could make the approval process of student loan refinancing easier.
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- Credit Score: The credit score of an individual is considered as a measurement of financial responsibility. When you apply for a student loan refinancing, most likely is that the lender will evaluate the credit score to understand whether you meet your financial obligations or not. Usually a credit score of more than 600 seems good to go but to be on the safe side you should aim at having a credit score of more than 700.
- Income: In case of student loan refinancing it is most likely that the lender will scrutinize your income. They want to ensure that they have a steady monthly income and regular cash flow to ensure that the borrower will be able to make the monthly payments. So before you apply for a student loan refinancing you should carefully examine your sources of income. You need also find out whether after making the monthly payments for the loan do you have enough for other necessary expenses. In case you do not have an adequate monthly income you can increase the chances of your approval with a qualified co-signer.
- Other Debt: In case you have other debts like credit card payments, auto loans, or mortgages it might influence the approval process of your student loan refinancing. This is because lenders will be apprehensive whether you will be able to make the monthly payments after you have had met all other financial obligations. Hence, a better approach is to repay as much as you can from your existing debts before you apply for a student loan refinancing.
- Debt-to-Income Ratio: While you have applied for a student loan refinancing, the lender will obviously have a look at the debt-to-income ratio. It is a ratio of one’s total monthly earnings when compared to your monthly debt obligations. For instance, if you have a monthly income of $10,000 and $4,000 per month debt expenses in that case the debt-to-income ratio is 40%. In case, you have a higher debt-to-income ratio the chances of getting approval for your student loan refinancing dwindles. Thus, it is recommended that before you apply for the student loan refinancing option, you should either increase your income or lower your debt or both.
- Employment Status: When you are applying for a student loan refinancing it is important that you are either employed or have a written job offer in hand. It makes the approval easier. However, there are many private lenders who may offer you loans even when you are in school or residency, while most of the lenders will seek for some kind of work experience. In case, you have still not obtained a job getting your student loan refinancing approved can be quite difficult but you might give try with a co-signer.
The factors mentioned above may be a guideline to make the approval process of student loan refinancing easier but it does not guarantee a confirm approval. The final approval depends to a large extent on the lender, the borrower, and a lot of other factors that may be beyond your control. What is not beyond our control is lowering taxes and being business friendly which creates jobs which is what Texas has done but not New York or California but this is another topic.
Good luck on paying off your school loans! Hopefully you did not spend too much money on acquiring a degree that does not lead to a high paying career such as English, Humanities, Psychology, and so forth.