The Broke Professional - Optimize Your Financial Life

Where to Refinance Your Student Loans

Get some quotes people

Get some quotes people

This post contains affiliate links

People tend to need some hand holding when trying something new.  I’ve found this to be the case when recommending student loan refinance to colleagues.

I recently wrote why everyone with student loans should consider refinancing.  The best that could happen is that your interest rate goes down substantially and you save tens of thousands of dollars over the life of the loan.  The worst that could happen is that refinancing is not beneficial and you stay right where you are.

Nothing to lose at all.

And while people generally like doing things that will benefit them, sometimes a little prodding is still necessary.

For example, I know it’s a good idea to try and fix things around the house myself before I call someone.  But I need to watch a couple of good step by step videos on Youtube before anything actually gets done.  That’s just the way I am.

Many people are like this when it comes to saving money.  They know it’s a good idea to open up a savings account and contribute to it automatically, find a less onerous checking account or sign up for a rewards credit card. But sometimes a little kick in the pants is needed to get going.

This post will serve as that kick in the pants.  I will show you how easy the student loan refinance process is and what companies you should consider.  Let’s get started.

(I will use screenshots from SoFi since they do not require a hard credit check before getting quotes.  More on that later.)

Step 1:  Go to the lender’s website

SoFi page 1

Just type in SoFi.com (or better yet use this link and get $100 if your loan gets approved.)

Most online student loan refinancing companies have easy to use interfaces.  Once you’re on the home page, simply click “Find My Rate” on the top right.

Step 2:  Enter Your Personal Information

info screen

In order to give you an accurate quote, lenders need some information from you.  The type of information required will vary between lenders, and some lenders will do a credit check before you get your quotes.  So the experience with each company will vary.

(By the way I did not hack into Bill Nye’s SoFi account I just made up an account with his name.  I’m fairly sure he doesn’t have a need for student loan refinancing.)

Typically, the information most lenders require is:

-Basic demographic information

-School information

-Employment information

-Current student loan balances and rates

-A little later in the process, you will probably have to send proof of income and a picture of your license or passport.

Some people are wary of giving companies too much information.  This is not really anything to worry about.  In reality, Facebook has a whole lot more information on us than these companies ever will, so I’m okay with letting them know how much money I make.

Step 3:  Analyze your quotes and make a decision

quotes screen

This is where the fun begins.  After you enter all of your information, companies will run a soft or hard credit check.  A soft check won’t affect your credit score but will still allow you to see some quotes which are going to be pretty close to your actual quote.  A hard credit check will show up on your credit report but will give you very precise quotes.

With the example I used, I assumed a student loan balance of $100,000 with a 7% interest rate and a 25 year term.  The minimum payment would be $706.78.  Making just the minimum payment over those 25 years would amount to a total payment amount of $212,000.  More than double the original loan amount!

I advise to go with the shortest payoff period you’re comfortable with and can afford.  But as you can see, even if you go with a 20 year term it would still result in a lifetime savings of more than $43,000 with a slightly lower than original monthly payment!  That’s why I say refinancing is a no-brainer.

A shorter payoff term will also result in a lower interest rate.  So the shorter you can go, the better it will be.

Fixed or Variable?

The other consideration is if you should go with a fixed interest rate or a variable interest rate.  This discussion deserves a post of its own (that’s a good idea!), but if you opt to go with a longer payoff period, about 10 years or longer, I would suggest sticking with a fixed interest rate.

Interest rates are sort of predictable as far as if they will be going up or down, but the uncertainty lies in when that will happen.  Right now in 2016, for instance, interest rates are pretty low so they are bound to go up at some point.

But that could be 6 months from now or 6 years from now.  There is too much uncertainty over a long period of time.  So for shorter term loans, less than 10 years, variable rates are a good bet and for longer term loans, it’s better to stay with fixed.  Everyone has different risk tolerances so use that as a general guideline.

The last thing to consider is that your rates will probably vary from my results, and will probably vary from someone in your same class.  Companies take into account your credit score, credit history, loan balance, interest rate, where you live, where you work and who knows what else.  The screenshot above is just for illustrative purposes, so make sure to get quotes after putting in your own personal information.

So Which Refinance Company Should I Use?

The student loan refinance arena is growing rapidly.  I keep get letters in the mail from new companies claiming they can refinance my loans at the lowest rate possible.

But let me give you the short answer.  There are only two companies worth your trouble:

#1: Earnest (get a $200 bonus by using this link)

#2: SoFi (get a $100 bonus by using this link)

I ended up going with Earnest for my refinance, just because their quoted rate was .05% lower than SoFi’s.  Everything else was pretty much the same with both companies.

Both companies make the onboarding process easy and both companies have great customer service.  You may get different quotes because both companies have different underwriting standards, so get quotes from them both and compare.

If you really truly want more quotes, a good place to look would be Magnify Money.  They will give you a list of all the best student loan refinance companies.  They are also a great resource to find the best checking and savings accounts.

Looking at the potential savings from refinancing I don’t know why anyone would not get a few quotes and see how much they could save.  Refinancing is not a good choice for everyone, but getting quotes online is so easy it really is in your best interest to just take a look.

So to conclude: Earnest. SoFi.  See how much you can save.

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How to Kill your Credit Score

Your credit score is one of the most overlooked parts of personal finance.  Most people don’t know what their credit score is, why it’s important, what contributes to your score and how you can improve it.  I will go into all of that and more.  If you take away only one thing from this discussion, it should be that improving your credit score is a sure fire way for you to save THOUSANDS of dollars across a lifetime.  This is because if you have a great credit score, you will get the best interest rates on mortgage and car loans.  Getting the best rate can save you tens of thousands of dollars on your mortgage alone.

Credit Score basics

Your credit score is a number between 300-850 that lenders use to determine if you are a risky borrower or not.  Generally speaking, the lower your credit score, the more risky you look to lenders.  Which means they will offer you the higher end of their interest rates.  The opposite holds true for those with high credit scores.  This means you will get a great rate for your mortgage, car loan and be accepted for all of the awesome credit cards available.

What goes into your credit score?  Let’s go straight to the source:  The Fair Isaac Corporation (FICO).  Your credit score is also called your FICO score, so it pays to listen to what they tell you.  Here is a nice little pie chart that lays it all out there for you:

Creditsesame

Looking at the chart, it’s easy to see what makes up the majority of your score: payment history, amounts owed and length of credit history.  So as long as you make your payments on time, don’t go near your credit limit on your cards and do that for a few years, your credit score will most likely be excellent.

Conversely, there are a few things that can absolutely KILL your credit score.  And it’s a lot easier and faster to lower your score than it is to increase it.  Making late payments is the #1 surefire way to kill your credit score.  Looking at the chart makes that obvious, but it also makes perfect sense from a lender’s point of view.

If you’re shopping for a home loan, the lenders will look at your credit score.  If your score is low, it tells them you probably don’t pay your bills on time.  While this may or may not be a fair judgement based on one number, a low credit score will nonetheless discourage them from offering you their lowest interest rates.

And late or missed payments can include anything:  Credit card bills, past mortgage payments, rent, car payments, cell phone bills, utility bills and student loan payments.  All of this stuff gets reported to the credit bureaus, so staying on top of your payments is vitally important.

Do Business Online

What’s the best way to make all of your payments on time?  Do everything online.  This makes things really easy as you can just bookmark all of your monthly bills and pay them right online.  Many also allow automatic payments, which pretty much guarantees on time payments.  Use technology to your advantage when it comes to your credit score.  Your future self will thank you.

Another way to hurt your credit score?  Getting really close to your credit limit.  This usually refers to credit cards, and it specifically refers to your credit utilization ratio.

If you have a $20,000 credit limit across all of your cards, and are consistently charging $19,999 every statement period, this shows lenders that you’re using too much credit.  You are a risky borrower in their eyes.  There are two ways to fix this.  The obvious one is don’t spend up to your credit limit!  Either switch to cash for some payments or go through your spending history and cut out the unnecessary stuff.

Another way is to request a credit limit increase.  Just call the number on the back of your credit cards and ask if you can get your limit increased.  Some will do it and some won’t.  But any increase in your credit availability will help your ratio.  Increasing your credit limits and decreasing your spending at the same time would be the ideal way to go.

Conclusion

According to the FICO pie chart, new credit and types of credit used also contribute to your score.  This is only 20% of your score, so it’s not really worth focusing a lot of your time on, especially if you have problems with late payments.  Opening a lot of lines of credit will temporarily decrease your score a few points, but it will go back up once they realize you’re still making your payments on time.  Focusing on late payments and high credit utilization ratios, the two credit score killers, is the quickest and most important way to improve your score.

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