With the rising cost of college tuition, it's no wonder many students take out private loans to pay for their undergrad and graduate schooling. While this makes higher education possible for many, taking on a loan means you'll be responsible for interest payments in addition to your original loan costs. Aside from the month-to-month interest payment determined by your loan's interest rate, it's also important to keep the total interest in mind when considering ways to save. Keep reading to learn how you could save on interest if you have private student loans:
Refinance Your Student Loan
Refinancing your student loan could be an excellent way to save money on interest. By refinancing student loans, you may be able to get a new loan with a lower interest rate, which could help you save a significant amount over the life of your loan. This option is especially beneficial if you have improved your credit score or income since you first took out your loan.
When shopping for a new loan, compare interest rates and terms to ensure you find the best deal. Interest rates are cyclical-so even if national rates are high now, they won't be forever.
Negotiate with Your Current Lender
While negotiating with your current lenders may not work for everyone, it is always worth a try. Some lenders may be willing to lower your interest rate or offer more favorable terms if they believe you are at risk of defaulting on your loan.
To negotiate effectively, take the time to research your lender's policies and gather information about your financial situation. This way, you can present convincing evidence demonstrating why you deserve different terms on your loan.
Your lender may also offer a lower interest rate if you are a multiple-product customer. For example, if you have a credit card or open a checking or savings account with your student loan lender, you may qualify for a lower interest rate.
Improve Your Credit
Your credit score is an essential factor in determining the interest rate of your private student loans. The higher your credit score, the more likely you are to get a lower rate, and vice versa.
A few tactics to improve your credit score include the following:
- Make your payments on time (always)
- Keep your credit utilization low
- Avoid opening new credit accounts unnecessarily
If your credit score is currently less than stellar, consider getting a co-signer or taking steps to rebuild your credit, like getting a secured credit card or a credit builder loan.
Set up Autopay
When you enroll in autopay, your lender automatically deducts your payments from your bank account. Doing so eliminates the risk of missing a payment, which could lead to fees and higher interest rates.
Some lenders even offer a discount on the interest rate if you enroll in autopay, generally around 0.25%. While it may not seem like a lot, it could add up over the life of the loan and save you money.
Make More Payments
By paying more than the minimum payment, you could reduce the principal amount you owe, which means you'll pay less interest over time. In the life of a loan, this can add up to thousands of dollars saved-and you can make these extra payments at any time, on your own schedule, and regardless of current interest rate offerings.
Even small amounts can make a difference. To make it easier, consider creating a budget, cutting back on unnecessary expenses, and using any windfalls, like tax refunds or bonuses, to make extra payments.
This is one of the simplest yet most effective ways to save on interest if you have private student loans.
If you have private student loans, there are several ways to save on interest rates as well as the total interest paid. If you're thinking about refinancing, consider using a student loan refinance calculator to figure out if that could work for you. Negotiating with your lender, setting up autopay, and making extra payments are also good options to explore. By taking proactive steps to manage your student loans, you can make smart decisions and, ultimately, save money.
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