Sometimes there’s confusion about the difference between taking out a student loan and refinancing a loan. In the first case, you get a new loan to pay for current school costs. Refinancing, on the other hand, refers to a loan you already took out in the past. When you refinance, you swap your old loan for a new one with a lower interest rate.
You might be wondering if refinancing makes sense for you. For example, when is it advantageous to refinance federal student loans? How about private loans? Or maybe both?
There are ways to get answers to these questions, such as this infographic from Credible. It’s a step-by-step guide that helps you understand student loan refinancing according to your situation.
The most important thing to consider is how much refinancing might save you. Well, if you are an average borrower, it can save you plenty. Current stats reveal that borrowers can save an average of $18,600 if they refinance their student loan. Plus, refinancing does not affect your credit score at all. In fact, it might help your score if you make payments on time and in full.
There are basically two ways you can apply the savings:
- Reduce your monthly student loan payment
- Pay off your loan faster
If you feel like you are paying too much on your student loan, then explore your options. You might be surprised at how much you can save.