Here are 3 steps to take before refinancing student loan.
1. Pay credit card debt
If you are also dealing with credit card debt, it makes sense to pay as much as possible before refinancing your student loans. This is due to the fact that it will affect the debt to income ratio (DTI), as well as your credit rating.
Debt to income ratio is one of the main ways lenders can assess your viability as a borrower, so if you carry large balances on your credit card, this can affect your overall DTI.
In addition, the transfer of credit card balances will affect the use of your credit — or how much you take compared to the credit limit — which also affects your credit rating. In general, it is good to keep your balances at 30 percent or less of your credit limit.
Paying credit card debt can benefit your total DTI, as well as your credit score, which can help improve your chances of getting approval for refinancing.
2. Collect your financial documents
Lenders want to make sure that you are legal and can get your loan back. Thus, they will request various documents to evaluate your eligibility as a candidate. To help the application process move smoothly, you must collect your financial documents in advance.
Each lender will request different documents, but to prepare, collect your last salary and the most recent tax return. In addition, create a document with the following information:
Your credit agent information, including name, phone number and address.
A list of all your loans, including their balance sheet and interest rate.
In the end, you will also need to capture your payment claims from your current service providers, although this is usually not required until you are approved for refinancing.
Having this information ahead of time can save you a headache on the line and prevent any delays in your application.
3. Look at all your options.
Refinancing student loans can make financial sense, but you want to see all your options before you go on refinancing. For example, if you work in the nonprofit sector, you may be better off pursuing the forgiveness of public services.
When you refinance your federal student loans, you are denied repayment options, including options for deferring payments or registering in terms of income repayment. Be sure to explore all your options and truly understand what you are going to sacrifice before refinancing your student loans.
Keep in mind that you have different options when it comes to lenders to refinance your student loans. Many borrowers go shopping and call on several lenders to get the best rates.
Refinancing can be an excellent option for many borrowers with federal and private student loans that have average interest rates. If you are planning to refinance, use these steps to simplify the process and improve your chances of getting approval. It can save you time and money.
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