The companies offer to refinance student loans at 1.74%. Are they legit?
The other day I saw a student loan refinance ad with rates starting at just 1.74%. And I immediately thought: can anyone really claim such a low rate? So I turned to experts who said, yes, there are a number of rates below 2% that some borrowers can get. Here’s what you need to know about them.
There are two big factors that could lead a borrower to score a student loan refinance APR of less than 2.00%: shopping smart and your financial qualifications. “Getting the best student loan refi rate depends on your skill level, but also on your ability to shop around,” says Anna Helhoski, student loan expert at NerdWallet.
But first, there are a few things you need to know. “APRs below 2.00% advertised by reputable lenders are really only available in the form of variable rates, which are not suitable for all borrowers. Unlike fixed rates, variable rates generally start to fall but tend to to increase over time, fluctuating with market forces beyond the average borrower’s control,” says Andrew Pentis, Certified Student Loan Counselor and Education Finance Expert at Student Loan Hero. Variable rates can make sense for very short loan terms, while a fixed rate loan – thanks to the very low rates currently on offer – makes sense if your repayment term is longer.
Further, “variable rates below 2.00% are really only available to the creme de la creme of creditworthy borrowers. If you have an excellent credit score, a particularly favorable debt ratio and a stable financial and professional history, you have a chance of obtaining these extremely low APRs,” adds Pentis. This probably means a credit score of at least 760 and a debt ratio below 15%. Helhoski adds, “If you don’t have great credit and a low debt-to-equity ratio, or a co-signer who does, you won’t get the lowest rates.”
What is more typical is to get a slightly higher single-digit student loan rate. Data from Credible shows that for borrowers with at least a 720 credit score, rates average 3.60% on 10-year fixed rate loans and 5-year variable loans at 2.96 %. To get the best rate, you’ll want to compare APRs and promotional or loyalty discounts from multiple lenders, says Helhoski. Also consider shortening the term of your loan if you can afford it: “You may get the lowest interest rate with the shortest term, but the trade-off for paying less interest over the life of the loan is a higher monthly payment amount,” she adds. .
Since most student loan refinance rates are in the single digits, they can be a real opportunity for borrowers with high-interest federal or private loans to save significantly. Remember that when you refinance your federal loan to a private loan, you risk losing the built-in federal loan protections. “Refinancing is especially beneficial for private student borrowers who may have double-digit APRs attached to their original school loans. With at least a few years of positive credit history and possibly a co-signer, they can reasonably expect to qualify for a single-digit APR closer to the 7.00% range,” says Pentis. He adds, “If you have a Federal Parent PLUS loan above 7.00% interest but have a creditworthy refi application, you could possibly be quoted at a fixed rate below 5.00% or even lower. ” And it could save borrowers hundreds or even thousands of dollars in interest, depending on the amount and term of the loan.
If refinancing sounds like it makes sense to you now, the way to get the best student loan rates possible—in addition to getting your credit in good shape—is to shop around, according to Rebecca Safier, certified student loan counselor and expert. in education financing at Student Loan Heroes. “Many lenders allow you to prequalify online without impacting your credit score. By shopping around, you can find the best refinance deal. You can also check with your bank or credit union if they refinance student loans and offer special interest rate discounts to bank customers,” says Safier.