Archive for January, 2009

Jan200930

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Refinancing your Student Loan

It’s easy to be buried in debt when you go into student loans. Some student loans charge high interest rates which are hard to keep up when you’re juggling low-paying part time jobs with hectic class schedules.

Where to begin

The first thing you need to do is to look for a credible establishment that offers lower interest rates. As in refinancing any other loan, you should check your projected monthly savings against the total cost of closing your old student loan.

Expect to have to initially dole out cash because closing the old loan is bound to incur penalty fees. The rule of the thumb here is to look for new payment schemes which will allow you to break even within 1 or 2 years.

Who handles refinancing?

You have a choice between traditional banks, credit unions, and online lenders. Aside from low interest rates, you should consider the credibility of the institution. If its an online bank or lender, try to check its soundness ratings on Bankrates.com or BauerFinancial.

Clue: not all old banks have high ratings, but most of them make it to the list. Be very wary of online lenders with no good history to back up their promises.

Jan200904

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Things to Consider Before Refinancing

Refinancing is not always the solution to your debt problems. Sometimes refinancing without examining the terms closely only leads to more expenses. You need to think about two things before you decide to refinance: time and cost.

Cost

Refinancing can cost you money initially. You should figure out how much it costs to close your old loan. Most loans, especially those with fixed interest rates, have high penalty fees for early payments and/or term alterations.

Check these costs against your projected monthly savings from refinancing. It might take a while for you to break even. Naturally, the bank will ask for payment for the legwork included in your refinancing request.

Time

It’s important for anyone who’s thinking about refinancing to know the break even point. To do this, you need to consider the total costs of refinancing against the projected gains of your new payment scheme.

Compute your monthly savings, and try to see when it will all even out with the total cost of refinancing. If it takes more than three years to break even, ditch the idea and shop for a better payment scheme. If you can break even within a year, you should go ahead and grab the opportunity.