Undergoing research to learn a few alternatives on how to refinance student loans with bad credit is very simple. This method includes evaluating different lenders and securing an application with a co-signer.
Refinancing student loans is the procedure of securing a recent loan from a private lender and using it to pay back debts and get a favorable interest rate. Generally, it is necessary to have excellent credit in order to be eligible for student loan refinancing, but bad credit can be challenging.
However, some lenders may impose higher fees, while others could reject your application for a new loan completely. Most lenders have various criteria to evaluate borrower qualifications and interest rates.
If you have bad credit and are also eligible for student loan refinancing, the amount the rate provides could surpass your current rates. Additionally, some lenders offer loans to applicants with a credit score of 670 or above, meaning you are still eligible to refinance.
How to Refinance Student Loans with Bad Credit
Knowing how to refinance a student loan with bad credit is a significant way to save money on your institutional debt. However, multiple private lenders request a low credit score ranging from 600 and above for refinancing student loans.
If your credit is bad or nonexistent, there are still ways to secure refinancing options for your student loans.
Most lenders have various credit requirements; some request good credit, others allow minimal credit scores, and a few don’t have minimum credit requirements.
However, it’s essential to evaluate and compare various lenders to get the right refinance student loan for yourself. Additionally, there are some factors to consider aside from credit, such as interest rates, repayment terms, and fees charged by lenders.
Also, certain lenders typically associate a higher interest rate with applicants with good credit, even though they offer loans with bad credit. Moreover, securing approval may still be possible by applying alongside a creditworthy cosigner.
2. Apply With a Co-Signer
You can add a relative as a co-signer to your request to obtain a loan, which can help you be eligible to refinance your student loans if you have bad credit. Moreover, your co-signer must have good credit to secure a loan, which could help you obtain a minimal rate and favorable loan terms.
However, there are some disadvantages, like that co-signing exposes your co-signer as their credit reports and scores become vulnerable to potential credit risks. If you fail to pay back your refinance student loan, both your credit and co-signer credit will be affected by late payment or loan default.
Furthermore, your assigned co-signer is responsible for the loan just like the main borrower. Also, if you make your payments on time, the co-signer could find it challenging to borrow a loan in the future.
3. Boost Your Credit
In order to improve your credit score before submitting your application, take these essential steps:
• Dispute Errors
Utilize your right to obtain a free credit report annually from Equifax, Experian, and TransUnion at AnnualCreditReport.com. Examine your report for discrepancies that could be affecting your score.
If any errors are detected, dispute them with the credit bureau to have them rectified, ultimately elevating your credit score.
• Pay Down Debt
Focus on settling existing debts and commit to timely bill payments. Given that payment history holds significant weight in credit score calculations, repaying debt positively affects your score.
Reducing credit utilization by either settling debts or increasing your credit limit (without utilizing the added limit) further contributes to score improvement.
• Maintain Account Stability
After clearing your debts, avoid closing old accounts. Older accounts positively influence your credit score by increasing the average age of your accounts and lowering your credit utilization ratio.
Avoid the temptation to open new accounts, as this can negatively affect your credit score through a hard credit inquiry.
4. Increase Your Cash Flow
Bad credit isn’t the only factor that could be rejected for student loan refinancing. Most lenders look at cash flow, or the amount of funds after paying regular monthly costs like rent and auto payments.
Additionally, the higher the cash flow, the more you are able to pay back a refinance loan. However, you can enhance your finances or minimize your costs in order to increase your cash flow.
Furthermore, paying off your already existing credit card balances or enlisting your income through gigs such as consulting, freelancing, or leveraging sharing economy apps can enhance your debt-to-income ratio.
What Credit Score is Needed to Refinance Student Loans?
Lenders typically keep their credit score requirements confidential, making it challenging to determine the main score for loan refinancing. Moreover, it suggests that a credit score exceeding 650 offers a stronger chance of eligibility.
Meanwhile, to meet the minimum requirements, a higher interest rate with bad credit makes you eligible, but your rate could be in double digits.
However, if lenders do not display their credit criteria, obtain prequalification from some companies. This will give you some ideas about your eligibility status based on your credit score and interest rate.
Alternatives to Refinancing Student Loans
Refinancing student loans is not the only method to minimize student loan payments. Here are some alternatives, which include:
For federal student loans, applying for a direct consolidation loan merges all your federal loans into a single one, rounding the interest rate up to the nearest one-eighth percent. This process involves no hard credit inquiry, and a co-signer isn’t required for eligibility.
• Changing Repayment Plans
If meeting payments is challenging, exploring income-driven repayment (IDR) plans is an option. Monthly payments under IDR plans are based on your income and household size, potentially dropping to as low as $0 during periods of unemployment. Note that IDR plans are exclusive to federal student loans.
• Discounted Options
Certain lenders provide autopay discounts. Enrolling in autopay could make you eligible for an interest rate reduction on your monthly payments.
Lowering the interest rate directs more of your monthly payment towards reducing the principal balance. Some lenders may also offer additional perks, such as referral bonuses.
Securing a refinancing student loan provides an opportunity to save on interest expenses or pay off the loan quickly. Although approval for refinancing generally requires good to excellent credit, some lenders are open to collaborating with individuals facing bad credit challenges.