When people have student loans, one of the first things they ask is, “How can I lower my interest rate?” This is because the interest rate determines how much you will ultimately have to pay back over time. The higher the interest rate, the more you will pay. There are a few ways to lower your student loan interest rates, and some are more creative than others.
Where to Find Lower Student Loan Rates
For most borrowers, federal student loans will typically have the lowest interest rates and best repayment terms. However, if you have excellent credit, or if you are in good standing credit-wise, refinancing with a private lender could potentially lower your student loan interest rate. If your credit history is not the best, federal loans will likely be your best option.
How to Reduce Your Interest Rate
If you do not have a solid credit history, the first step towards reducing your interest rate via student loan refinancing should be to work on improving your credit rating. If you have any bills or outstanding debt in default, get everything reconciled and paid up first. Try to avoid taking out any new lines of credit that are unnecessary. Meanwhile, keep paying down the student loans, both federal and private. Raising your credit score should put you in a better position for a student loan refinancing application with a private lender.
Once you have your credit rating improved, you can start researching different private lenders who offer refinancing and consolidation. With a higher credit score and established income, your chances of getting a low interest rate should improve. A successful application would result in a new loan from a private lender with a new interest rate. If all went well, then that rate should be lower than the average of your current student loan interest rates.
Taking Advantage of Student Loan Interest Reduction Offers
Interest rate reductions on refinanced loans and private loans are offered to borrowers who agree to an automatic withdrawal of payments, or autopay. Autopay simply means the lender has access to a debit account and can withdraw payment automatically every month. While this may reduce your interest rate and guarantee your payment is made on time every month, it is essential to have a consistent income to avoid any overdraft fees. A reduction of 0.25 percent is typical for autopay, but this reduction can vary.