Loan Refinancing Basics
When you refinance a loan, you’re essentially taking out a new loan to pay off the other one, with terms that are better for your financial situation.
Types of Loan Refinancing
While mortgage loans may be most commonly refinanced, you can find refinancing options for auto, personal and student loans, which have started accruing interest again as of Sept. 1, 2023. Roughly 44 million Americans must start repaying student debt in October 2023 after a three-and-a-half-year pause, creating possible stress on many households' finances. Refinancing might be a smart option if you took out a private student loan and did not meet the requirements for federal student loan forgiveness.
Not all lenders will refinance your loan, though. Just as you had to convince a lender that you were a good fit for your original loan, you’ll need to do the same when you refinance. Lenders will consider your income, credit history and credit score.
Benefits and Risks
The benefits of refinancing could include lowering your interest rate or monthly payment or changing the length or type of your loan. The financial calculators below can help you estimate how much you may save based on these variables.
Keep in mind that lowering your monthly payment may require extending your loan, which could mean that you pay more overall. Likewise, shortening your term can make it harder to afford your payments if your financial situation changes unexpectedly. If you refinance federal student loans, you could lose access to debt forgiveness or government relief programs. Be sure to verify if there are any prepayment penalties on the previous loan.
When to Refinance
The best time to refinance depends on multiple factors. If interest rates have dropped since you took out the loan or if your credit score has improved significantly, it may be worth trying to lower your interest rate with a refinanced loan. If you’re struggling to make your monthly payments, lowering your payments with a longer term, even if it means paying more overall, can help take some of the strain off your budget.
Each situation is different but taking all these factors into consideration will help you decide if refinancing makes sense for you.
Georgia United offers refinancing options for home loans, new and pre-owned vehicle loans and student loans. And Georgia United Visa® Credit Card account holders can transfer credit card balances without incurring a balance transfer fee.
You can apply for loan refinancing or a credit card from the comfort of your home on our website, by calling our Member Care Center or visiting a local branch. We look forward to helping you achieve your financial goals.
Source: Banzai
Content provided for informational purposes only and should not be interpreted as legal advice on any subject matter.