Is it Possible to Refinance a Personal Loan?

refinance a personal loan
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Trapped in a personal loan with a high interest rate or a massive monthly payment? It is possible to refinance to a loan that better suits your financial needs. We’ll explain how to refinance a personal loan and pitfalls to avoid when refinancing unsecured debt.

Is it possible to refinance a personal loan?

Refinancing a personal loan involves taking out a new loan to pay off an existing personal loan. Some people will refinance by negotiating new loan terms with their existing lender. However, many people refinance by taking out a new loan from a different lender. They use the proceeds of the loan to payoff their current loan.

It’s important to note that many lenders don’t advertise personal loan refinancing. However, you shouldn’t necessarily exclude them from your loan refinance search.

For example, a company spokesperson from SoFi (one of our top-rated personal loan issuers) explains that it treats all personal loans like incremental debt. If the company believes you can handle the payments on both your existing loan and your new loan, you may qualify for the new personal loan. On the other hand, Lightstream, a division of SunTrust Bank, specifically offers personal loan refinancing. Lightstream prices loans differently based on their intended use. Either company could be a great option to refinance your personal loan.

Depending on your income, your credit score, and your credit usage you may find a great rate at any number of personal loan companies.

When does it make sense to refinance a personal loan?

Refinancing your personal loan generally makes sense when the new loan comes with better terms or you need to refinance in order to remove a cosigner.

For example, your credit may have improved or your income increased significantly enough that you may qualify for a loan with a better APR. On the other hand, you may be struggling to meet your monthly payments and want to take out a new personal loan with lower monthly payments and a longer loan term.

“It could make sense to refinance almost any time if you can get better terms,” says Todd Nelson, business development officer for Lightstream, a division of SunTrust Bank. “Less interest is always a good thing.”

How to refinance a personal loan

No matter your goal, you’ll want to take a few steps to make sure that you get the best possible deal on your new loan.

Understand your existing loan

Before you pay off an old loan, check whether your loan has prepayment penalties, so you can factor any penalties into your loan analysis. Most banks do not charge prepayment penalties for personal loans, but those that do will typically charge a set fee for paying off a loan early. The terms and conditions of your loan will outline whether or not you have to pay a prepayment penalty. If you don’t understand the terms, you can talk to your lender to clarify the rules.

In addition to understanding your prepayment penalties, you’ll want to know your interest rate, the time remaining on your loan, and the required monthly payment. Refinancing your loan may affect all three of these numbers.

Get your credit in order

Once you understand your existing loan, you’ll want to check your credit score. You may need to make some efforts to clean up your credit before applying for a loan refinance. In particular, removing errors from your credit report and paying down credit card debt may help to improve your odds of approval. If possible, avoid applying for additional loans for three to six months before you refinance your personal loan. Applying for multiple lines of credit in a short time period makes you look like a worse credit risk according to the Fair Isaac Corporation, which creates the FICO® scores that are widely used in lending decisions.

Although your credit score matters, it’s not the only factor lenders will consider when setting your loan rate. “A great credit score doesn’t mean you’ll get the best rate,” Nelson cautions. Lenders will also consider your existing debt load, your income and how you’ve used debt in the past.

Prepare a budget

Refinancing a debt means your monthly payment will change. You’ll want to be sure that you can handle the change by preparing a budget. You need to know how much you can realistically pay each month, so you can continue to make timely payments every month.

Start shopping around for a new loan

Once you have your finances in order, you’ll want to start shopping for new loans. A great place to start is with LendingTree, where you can fill out a short online form and potentially get quotes from several lenders at once. LendingTree is the parent company of MagnifyMoney.

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If you don’t see banks offering better terms, you may want to stick with your current loan until you pay it off.

Apply for multiple loans

When you see the potential for savings, start applying for new personal loans. When you apply for a new personal loan, you will see a hard credit inquiry on your credit report. The more places you apply, the more credit inquiries you’ll see.

However, multiple credit inquiries won’t destroy your credit if you apply within a few weeks.
According to the credit reporting bureau Experian, “Generally, credit scoring models will count multiple hard inquiries for the same type of credit product as a single event as long as they occur in a short window of a few weeks.”

When you apply for a personal loan refinance, you’ll need all your personal identification documents, and you may need proof of income (such as a pay stub, W-2 form or a tax return).

Check out our list of the best personal loans for 2017.

Choose the best offer

Once you have a few offers in hand, you’ll want to compare them to see which is the best deal for you.

You can use this calculator to compare the interest you expect to pay on your existing loan (use your current balance, current interest rate, and current monthly payment at the top) with the interest and fees you’ll pay on a new personal loan.

When you find the best offer, you can accept the loan terms with your new lender.

Pay off your old loan

The process for paying off your old loan will vary by lender. According to Nelson from Lightstream, lenders who work with high-credit-score applicants will generally deposit the funds into your checking or savings account. Then it’s up to you to pay off your existing debt.

In general, you can close your old debt by making a payment through the Bill Pay portal on your lender’s website. After you make the payment, you should see a balance of $0. You can call your lender to be sure that the final payment is processed and the loan is closed.

Lenders that work with subprime borrowers may pay off the old debt directly. In those cases, you should still call the lender to confirm that your old debt is closed.

Shopping for lower interest rates

If you’re looking for a lower interest rate, you’ll probably find a better personal loan in one of two circumstances. First, you may find a better interest rate if your credit score improved since taking out the loan. The more your credit score improved, the more likely you are to see great refinancing options.

You may also find a better interest rate if you didn’t originally shop around. In this situation, it may pay off to compare personal offers from a few different lenders. You may be surprised by how low your rate can go.

Of course, a lower interest rate doesn’t mean you’ll necessarily save money when you refinance your personal loan. You will want to do the math the following to see if you will actually save money with a refinance. If the origination fees and the total cost of interest are lower than the remaining interest on your loan, it makes sense to refinance the loan.

Finding lower monthly payments

Anyone looking to lower their monthly payments will usually want to refinance to a longer loan. While credit score improvements may lower your monthly payment a little, spreading the payments over a longer period lowers the payments even more.

If you’re facing a pinched cash flow, refinancing to a longer loan may make sense (especially if you can combine it with a better interest rate). The problem with refinancing to a longer loan is that you’ll generally pay more interest in the long run. Use this personal loan calculator to see how much more you’ll pay over time.

Taking out a larger loan

Some people consider refinancing a personal loan when they want to take on a bigger loan for an upcoming expense, or to consolidate additional debt. Refinancing makes sense if the new loan has a lower interest rate. In general, you want to keep your loan at the lowest interest rate possible, even if that means having two payments. If you want to take on more debt, be sure your budget can handle the added expense. Create a debt payoff plan before you take on any new debts.

When to avoid refinancing a personal loan

Even with lenders offering tantalizingly low interest rates, refinancing a personal loan doesn’t always make sense.

Refinancing isn’t cost-effective

For example, you don’t want to choose a new loan if it won’t save you money. This calculator can help you compare your current costs to the interest and fees you’ll pay if you choose to refinance. High origination fees may keep an otherwise attractive offer from being cost-effective.

Aggressive debt payoff

Refinancing a personal loan may backfire if you’re on an aggressive debt payoff plan. A loan with an origination fee may require several months of standard payments to reach a break-even point. This refinance calculator can help you determine how long it takes to reach the break-even point. (Use a tax rate of 0 percent.)

When you don’t have a debt payoff plan

Some people feel tempted to refinance a personal loan when their budget gets tight, and the monthly payments feel high. A personal loan refinance could be a smart financial move, but the refinance needs to be part of your comprehensive money management strategy. Before refinancing, create a realistic debt payoff plan.

Things to watch out for

In general, personal loans are straightforward, but you should beware of these personal loan traps (especially if you’re trying to refinance a subprime personal loan).

Prepayment penalties: Most major banks don’t charge prepayment penalties, but before you refinance, you’ll want to check your existing loan, too, to make sure one isn’t lurking in the fine print. A prepayment penalty may negate some of the savings you get from lowering your interest rate.

Credit insurance: Some lenders will try to get you to buy life insurance to cover the cost of the loan if you die. In general, this is not a good value. In fact, the Consumer Financial Protection Bureau (CFPB) has adopted measures that restrict the sale of credit insurance. However, you may still hear a pitch for the product.

It makes a lot of sense to have some level of insurance in place to cover your debts if you’re married, lose a job, etc. However, an inexpensive term life policy is a far better value than a loan specific policy. Job loss credit insurance may be a more compelling product, but it can be very expensive. Be sure to weigh the cost of the insurance before purchasing it.

Origination fees: Many personal loans come with origination fees, which can be as high as 8 percent of the loan’s value. That makes taking out a new loan an expensive proposition. Compare the remaining interest on your loan to the cost of the origination fee plus the interest cost of the new loan before deciding to refinance.

Late payment fees: Some lenders will charge you a late fee if you miss your payment date. Late fees can drive up your loan costs in a hurry. Anyone who has struggled with payments in the past will want to check this fee before refinancing.

Alternatives to refinancing a personal loan

Refinancing a personal loan to another personal loan isn’t always the cheapest option. If you’ve got great credit, or you own a home you might find cheap options to eliminate your debt.

Balance transfer credit cards

Some credit card companies will allow you to transfer a personal loan balance to a promotional 0 percent intro APR balance transfer credit card. This can be a quick way to drop your interest rate in a hurry.

Before you apply for a balance transfer credit card, you’ll want to check on a few things. First, you won’t want to apply for a credit card from a bank that holds your debt. For example, you won’t want to opt for the Citi Simplicity® credit card if a Citi Affiliate owns your debt.

It’s also important to clarify that the credit card company will allow you to transfer a personal loan balance to your credit card. For example, the Chase Slate® card does not allow you to transfer personal loan balances to your credit card.

You can generally learn more about a lender’s balance transfer policy by reading their terms and conditions page in a section entitled Balance Transfers. However, if the terms aren’t clear, you should take the time to call a bank representative before applying.

A balance transfer credit card is an appropriate solution for people who can pay down their personal loan debt before the introductory rate expires.

HELOCs

Homeowners who have equity in their house may also find that a HELOC, or home equity line of credit, offers better terms than their existing personal loan. A HELOC has tax-deductible interest, and it operates like a line of credit. You can use a HELOC to pay off higher interest debts, or to pay for other important expenses. However, you need to be careful not to treat a HELOC as free money. You still need to pay off your HELOC in time.

The post Is it Possible to Refinance a Personal Loan? appeared first on MagnifyMoney.

Refinancing With Your Current Mortgage Lender: Is It a Good Idea?

Should you refinance with your current lender?
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Recently, you hopped online to make your mortgage payment. On the front page of your financial institution’s website, you saw refinancing advertised at a much lower interest rate than the one you currently carry.

Your gut instinct may be to fill out an application for a refi. Who doesn’t want a lower interest rate on their mortgage?

But before you jump at the offer to refinance with your current lender, you should shop around. There may be better deals out there.

Pros And Cons Of Refinancing A Mortgage With Your Current Lender

Pros:

  • They have all of your personal information on hand, which may help the approval process go marginally faster.
  • You may be able to use your continued patronage as a bargaining chip for lowering closing costs and other fees.
  • If you like your current financial institution, there’s nothing wrong with staying with them out of brand loyalty — as long as it’s not costing you money.

Cons:

  • You will still have to provide documentation such as bank statements and W-2s, and your lender will still have to pull your credit report.
  • They may not have the best rates on the market. You’ll need to shop around to find out.
  • They may have more or higher fees than their competitors.
  • If you’re a customer service nightmare, your current institution may offer you higher rates

How to shop for a refi loan

That advertised rate you saw may not be the best option on the market. Even if it is, there’s no guarantee you’ll qualify for it.

Step 1: Compare rates from multiple lenders

Before you fall in love with the benefits of refinancing with your current lender, check to see what you can find elsewhere. A great way to do this is to use a site like LendingTree, which is MagnifyMoney’s parent company and one of the biggest online marketplaces for loans.

Without performing a hard credit pull (which saves you from dinging your score), LendingTree will ask you some basic underwriting questions via an online form. They can then match you with potential lenders who participate in its marketplace. The lenders will contact you via email or phone with quotes, which you can compare.

Of course, you can always work directly with lenders in your area as well.

Armed with this information, you can go back to your current lender to see if they can meet or beat the lowest rate you’ve been offered.

Step 2: Get all quotes the same day

“It is important to get all the quotes at the same time on the same day,” says Casey Fleming, mortgage adviser and author of “The Loan Guide: How to Get the Best Possible Mortgage,” “because at that moment, everyone is looking at the same data, and their wholesale cost for that loan is identical.”

That’s because of the way mortgage lenders set their rates. When you take out a mortgage, your financial institution actually owns it for a very short period of time. But not for long. Eventually, they will bundle your loan together with a bunch of other loans and sell it to investors, and they continue to service your loan for a small fee.

They offer standard, wholesale interest rates to investors daily. Your financial institution needs to charge you more than that wholesale interest rate if they want to make a profit on the sale. You should apply to all financial institutions on the same day to ensure they’re all basing your quotes off of the same wholesale rate.

Step 3: Go to your lender to negotiate

When you find the best offer, use it as leverage with another lender. If they’re eager for your business, they may be willing to outdo their competitor. Remember that you’re not just negotiating interest rates but also origination fees, closing costs and appraisal report costs.

After you are offered a quote you are happy with, the lender locks it for a specified period of time before it is rescinded. Better rates merit shorter lock periods, the shortest being 15 days.

What if I find a better deal and they won’t match it?

If your current lender won’t match the outside quote, it likely makes sense to go with the outside lender. You’ll have a limited window in which to lock in your new refi rate, called a rate lock period. Be sure you know how long your rate lock period lasts so you can decide before you lose your rate.

A great rate isn’t all you should look at when comparing the costs of remaining with your lender versus choosing a new lender. Ask about origination fees, balloon payments and prepayment penalties — all of which could potentially make it more expensive to refinance.

After you have applied for the loan, you will be issued a Loan Estimate form, which outlines the proposed terms. At this point, a home appraisal will be performed to determine the value of your home.

Once final approval is issued, you will receive a Closing Disclosure form, which will tell you exactly how much you will need for closing costs. At this point you are still able to walk away from the table. After three days have passed, you’re finally allowed to sign the documentation agreeing to the loan.

How do I know it’s time to refinance my mortgage?

Whether you decide to refinance with your current lender or not, before taking the plunge you want to figure out if doing so will actually save you money.

Fleming says, to make a fair judgment, you need to look at interest and other costs over the same holding period.

“Very few people hold their mortgage until it’s paid off,” he explains. “Comparing the two for a period longer than [a few years] makes no sense, since your savings on the proposed loan will stop once you sell the house or refinance.”

For example, let’s say you currently have a mortgage with a balance of $284,020 with a 5% interest rate. You are considering refinancing to a 4% interest rate. In order to refinance you’d have to pay $4,100 in fees, including closing costs and origination fees.

Let’s look at how each of these options would pan out over an 84-month holding period:

Your current mortgage

Potential refi

Rate: 5%

Rate: 4%

Fees and closing costs: N/A

Fees and closing costs: $4,100

Total interest charges over 7 years: $92,385

Total interest charges over 7 years: $77,207

Total savings: $15,178

The refinance will, indeed, save you money even with the closing costs and fees. It’s time to refinance.

How to negotiate a refinance with your current lender

Like we mentioned before, when financial institutions issue a mortgage or refinance, they don’t typically keep it. They usually sell it off, and then continue servicing your loan for a kickback from the buyer. And they know that in order to keep getting paid that servicing fee, they’ll have to keep servicing your loan. That gives you a bit of leverage.

If you have other offers on the table, your current lender may be willing to meet or beat them.

“Call [your lender], and one of your options will be to speak with a loan officer, or mortgage adviser, or mortgage planner,” says Fleming. He notes that all of these titles are indicative of the same job description. “Tell them that you believe you can get a better rate, and that you have begun shopping and wanted to give them a shot at keeping you as a customer.”

This will only work if you can actually get a better rate elsewhere. While you can refinance with your current lender, the lender will be able to tell if you’re bluffing as they’ll have to pull your credit report and look at recent bank statements and W-2s.

“If [you] love the service of [your] existing lender, by all means ask them for a quote,” says Fleming, “but the market is very competitive today so shopping will almost certainly save you money.”

The post Refinancing With Your Current Mortgage Lender: Is It a Good Idea? appeared first on MagnifyMoney.

“How I Saved Almost $18,000 in Student Loans by Refinancing”

college-grad (1)

When Aaron LaRue, the founder of MortgageMonks.com, graduated from the University of California, Santa Barbara in 2011, he owed more than $50,000 in student loan debt. “I didn’t qualify for any financial aid or federally subsidized loans, and I took whatever private loan I could get because I just wanted to go to school,” he said.

By the time LaRue was done financing his schooling, he had ended up with three student loans, one for each year he was in school (he even graduated in three years on purpose in the hopes of cutting down on tuition costs). “Everything got lumped together when I consolidated the first time, but the loans were about $23,000 for the first year about then $13,500 for both my second and third years,” said LaRue. “So almost $50,000 on the nose.”

Since the variable interest rates on his loans were incredibly high, LaRue knew that he’d have to work throughout college in the hopes to pay down some of that debt he owed. “I worked as a teacher’s assistant for two different classes,” he said. “I was the photo editor of our daily school newspaper, and I worked in a computer lab on campus teaching video editing. At one point I had all three jobs at the same time, and that was on top of my crazy class schedule. On top of my consistent jobs, I also always had one-off side gigs going. I shot photos for magazines, photographed a wedding and would pick up freelance video editing jobs on the side.”

Needless to say, LaRue stayed busy — but the bills kept piling up.

Finally, after a few years of checkered payment history and a brief period of deferment, he decided to refinance. “Refinancing was really difficult for me,” LaRue admits. “I graduated high school in 2008, right when the economy was in free fall. By the time I graduated [college] in 2011, I was competing in a job market against people with tons of experience who had recently been laid off. It was difficult for me to get a good paying job, so I decided to go out on my own as a consultant and try to take on multiple clients. I’ve been doing that ever since.”

While LaRue found some success in his career after graduating, he admits that what many people often don’t understand is that when you’re self-employed, it’s very difficult to qualify for loans unless you have two years of tax returns as a self-employed person. “So the first time I tried to refinance my loan, I was denied,” he said. “I started doing more research and I came across a company — Earnest — that used a merit-based qualification system. They checked my earnings and my credit score, but they also dug through my bank accounts to see if I was managing my money properly. They could tell I was responsible, and I was able to qualify. This was huge for me, because it got me into a fixed interest rate loan, and my rate was 2% lower than what I was paying at the time.”

At the time of refinancing, LaRue had about $54,775 in debt, and he’s managed to save $17,990 over the life of the loan, which works out to over $1,200 per year during the repaying period. “I’m still making payments, but I’ve cut about four years off my repayment time and I’m saving money every month,” said LaRue.

At the end of the day, LaRue has some advice for students struggling under the same weight of crushing student loan debt. “Don’t let the debt get you down,” he says. “If you understand how debt works and you can manage it, it’s really not that bad. Debt has allowed me to go to school and it’s helped me start my own business, and in both cases I’ve come out ahead. Having a monthly payment sucks, but I have definitely gotten a return on my investment.”

If you’re ready to consider saving money by refinancing your own student loans, check out this piece for 19 options to refinance and get your lowest rate.

The post “How I Saved Almost $18,000 in Student Loans by Refinancing” appeared first on MagnifyMoney.

Options to Get Out of Your Timeshare

Woman trying to protect her saving

You’ve finally escaped the stress of your commute, stacks of unfinished paperwork, and the never-ending demands of the office. You’re staying someplace warm, enjoying pina coladas on the beach or working on your tan by the pool.

The resort’s sales manager has casually mentioned an affordable way to return to this same place every year. And in your relaxed state of bliss, you start daydreaming about future vacations. You imagine making the resort an annual family destination or the spot to celebrate your wedding anniversary.

Let’s face it — buying a timeshare is often an impulsive decision. And one you may regret after the drinks have worn off, your vacation is over, and reality sets in. Because chances are, your timeshare is not the amazing deal the resort’s sales manager sold you on. If you’re stuck with buyer’s remorse or simply can’t afford your timeshare, here is how to minimize the damage to your wallet and credit score.

What is a Timeshare?

So what is a timeshare exactly? A timeshare allows you to buy the right to use a property every year for a certain period of time. And the property is usually part of a resort. A deeded timeshare means you’re purchasing a portion of the property. And a non-deeded timeshare mean you’re leasing the right to use the property for an agreed upon number of years (usually 10-50).

How Much a Timeshare Actually Costs

The cost of a timeshare varies based on the size of the unit, the resort’s location, the time of year, amenities, and more. But the National Timeshare Owners Association (NTOA) says the average timeshare sales price is $20,020.

What does typical report-based financing looks like?

  • Loan Amount – $20,000
  • Term of Loan – 6 years (72 months)
  • Interest Rate Charged – 15.9%
  • Monthly Payment – $432.74
  • Actual Cost – $31,157.28

Many resorts also offer a 1-year loan with a 0% interest rate if you’re willing to put 50% down within 30 days of purchasing the timeshare.

In addition to the cost of the timeshare itself, you’re also responsible for an annual maintenance fee. The National Timeshare Owners Association (NTOA) says the average maintenance fee for 2015 is a whopping $880. This annual maintenance fee can increase over time. And you’re responsible for paying this fee every year regardless of whether or not you visit.

Selling a Timeshare

Are you thinking about trying to sell your timeshare? Although the National Timeshare Owners Association (NTOA) lists three preferred resellers on their website, it’s not always that simple.

Resale websites operate as a subscription service. And their fees range from $14.99 to $125 per year. Plus, resellers may take a portion of the sale.

Remember, timeshares are not real estate investments. And the secondary market is oversaturated with buyers. Want to see further evidence? A quick search on eBay revealed dozens of timeshares practically being given away for $1.

Try Refinancing Your Loan

Between the high interest rates of resort-based financing and the annual maintenance fee, what was sold as an affordable vacation becomes expensive very quickly. If you’re struggling to afford monthly loan payments, you may want to try refinancing to secure a single-digit interest rate.

LightStream, a division of SunTrust bank, offers timeshare-refinancing options if you’re a U.S. citizen with good credit. They don’t charge fees to refinance. And their interest rates are fixed.

Here’s an example of what the numbers may look like for refinanced timeshare loan:

  • Loan Amount – $20,000
  • Term of Loan – 6 years (72 months)
  • Interest Rate Charged – 7.84% – 9.84% APR with Autopay
  • Monthly Payment – $349.10 – $368.91
  • Actual Cost – $25,135.20 – $26,561.52
  • Money Saved – $4,595.76 – $6,022.08

Your timeshare might be such a financial drain that you decide to sell (or give it away) and then refinance the remaining debt to pay it off quickly and with a lower interest rate.

Consider Timeshare Exchanges

Did your resort’s sales manager mention the option of timeshare exchanges? It’s a major selling point for many buyers. And who wouldn’t like the option of trading timeshares with owners in other locations? But does it make sense for you? It depends.

If you’ve paid off your debt, it may be worth the additional fees to list your timeshare on an exchange. The National Timeshare Owners Association (NTOA) lists preferred exchange companies on their website. But you need to read the fine print. Less popular destinations and off-peak season timeshares tend to be more difficult to exchange. And there may be other restrictions that weren’t mentioned at the closing table.

Try To Negotiate With Original Owner

Have you paid off your debt but you’re sick of coughing up annual maintenance fees? It’s worth reaching out to the original owner to see if they’re willing to negotiate. They may agree to let you out of your original deal if you agree to cover a few years of maintenance fees. And they’ll have the option of reselling the timeshare to another buyer. It doesn’t hurt to ask!

Can’t negotiate with the original owner? Try getting a team of experts to help you legally get out of the contract with the Time Share Exit Team.

The Truth About Timeshares

It’s cheaper than ever to find affordable places to stay on vacation. Websites like Airbnb, VRBO, and HomeAway make it easy to find affordable listings all over the world. A timeshare at a luxury resort may seem attractive today, but what happens when your tastes and lifestyle change? The truth is, timeshares don’t always get used as often as buyers originally planned.

If you have to finance a timeshare, it’s probably not worth buying. Why? Resort-based financing can incur interest rates of 15-16%. And even once you’ve paid off the loan, you’re still stuck with expensive annual maintenance fees averaging $880 or more! Plus, attempting to resell can be a nightmare. It can get costly and there’s just not a strong secondary market. And all this doesn’t even include the cost of travel to get to your timeshare in the first place.

Despite all these drawbacks, almost 400,000 timeshares were sold in 2015. And it’s easy to see how buyers get roped in. It’s not easy to make a clear-headed decisions on a white sand beach after a couple of margaritas.

If you’re regretting your choice to buy or can’t afford your timeshare, you can minimize the damage to your wallet and credit by refinancing, exchanging, or negotiating with the original owner.

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Minnesota SELF Refinance: Student Loan Relief for Minnesota Residents

Students throwing graduation hats

Paying high interest rates on your student loans? If you’re a resident of Minnesota, we have good news for you. Administered by the Minnesota Office of Higher Education, Minnesota SELF Refi loans are available to Minnesota residents with more than $10,000 in qualified student loan debt. With credit scores affecting qualification but not interest rates, qualifying borrowers are, in many situations, able to obtain rates lower than federal student loans, potentially saving them money, and reducing the amount of time they are enslaved to their student loan debt.

Terms

Minnesota SELF Refi charges no application or origination fees. Late fees are up to $25 if your payment is not made within 15 days of the due date, and returned payment charges cap at $15. Qualified borrowers can opt for either a fixed interest rate, or a variable interest rate.

Fixed Interest Rate Loans

If you qualify for a Minnesota SELF Refi loan, your interest rate is determined by the length of your loan rather than your credit score. Those who opt for fixed interest will have the same interest rate for the entire term of the loan.

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Variable Interest Rate Loans

The variable option often score you a lower interest rate, with the understanding that it is subject to change over time. That means your rate could go either up or down every quarter on January 1st, April 1st, July 1st, and October 1st. Minnesota SELF Refi uses the LIBOR index to calculate quarterly rates. The LIBOR index is the average of interest rates from sixteen of the world’s largest banks.

The Minnesota Office of Higher Education pulls the rate from the past month of the LIBOR index, and then adds in a margin to cover its operating costs. Both numbers are reassessed every quarter, and their sum will be your interest rate for the next three months.

Current rates on variable interest rate loans are as follows:

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Rates on variable interest loans max out at 18%.

Pros and Cons of Refinancing with Minnesota SELF Refi

Pros

  • Variable interest rates are lower than current rates on federal student loans for 5- and 10-year terms, though they are subject to change.
  • If you initially financed federal student loans between 2006 and 2009, rates on Minnesota SELF Refi fixed rate loans are substantially lower for 5- and 10-year terms. Five-year terms on graduate loans are lower than the current Federal rate.
  • No application fees or origination fees.
  • Offers refinancing options for those with diplomas, certificates, and associate’s degrees.
  • Your credit score does not dictate your rate. If you qualify, you qualify for the uniform rates.
  • Cosigner release is available.

Cons

  • If you are refinancing a federal student loan, you will lose all benefits of any federal programs you are enrolled in.
  • No deferment options available.
  • Debt-to-income ratio may limit you from getting the more attractive rates that accompany shorter loan terms.
  • Maximum APR on variable rate loans is on the higher end at 18%.
  • Maximum loan amounts are small when compared to other refinance options in the private market.

[Learn more about refinancing here.]

Who Qualifies

Current Minnesota residents with a credit score of 720+ with no delinquencies on their credit report, and no charge offs, liens, or judgements of $300+ meet the credit requirements for this refinance option. Additionally, your debt-to-income ratio must be at or below 45%. You must have earned a certificate, diploma, associate’s degree, bachelor’s degree, or graduate degree, though max loan amounts differ depending on your degree.

  • If you have a certificate, diploma, or associate’s degree, you can refinance loans in the amount of $10,000-$25,000.
  • If you have a bachelor’s or graduate degree, you can refinance loans in the amount of $10,000-$70,000.

The loan you are refinancing must be a qualified student loan, meaning that it was used exclusively for tuition and fees, room and board, books, supplies, equipment, or other necessary expenses, like transportation, for your education at an eligible institution.

There are three situations where you must get a cosigner in order to qualify for refinancing with Minnesota SELF Refi. If you are not a US citizen or permanent resident, you must have a cosigner. If you are a citizen or permanent resident with a credit score between 650-720, you can also qualify if someone cosigns with you.

Cosigners must meet the following requirements:

  • Must be a US citizen or permanent resident
  • Must have a credit score of 720+
  • Must have a debt-to-income ratio at or below 40%
  • Must have no delinquencies on their credit report
  • Must have no charge offs, judgements, or liens amounting to $300+

If you up your credit game, your cosigner can be let off the hook after 48 months of on-time payments as long as you meet the borrower requirements outlined above.

Application Process and Documents Needed

You can apply online through FirstMark Services, the loan servicer for SELF Refi loans. In order to fill out the application, you will need the following information:

  • Your driver’s license number and date of issue
  • Name, address, and phone number of a personal reference (cannot be your cosigner)
  • Current annual income
  • Current employer name and phone number, along with how long you have been there in terms of years and months
  • Type of student loan you are refinancing
  • Lender and servicer name
  • Current interest rate you are paying

You’ll also need a printer and a scanner, as you’ll need to print, sign and upload the credit agreement. You will also need to scan and upload the following documents:

  • Copy of your photo ID, and the photo ID of your cosigner if you have a cosigner
  • Copy of your diploma, certificate, or degree including the date of graduation
  • Current statement of the loan you are refinancing that shows your name, the lender’s or servicer’s name and address, your account number, your current balance, and your interest rate
  • Your two most recent paystubs. They must show your name, your employer’s name, pay period, and pay date.
  • Federal tax return including all attached schedules if you are self-employed

After you have submitted your application, Firstmark will review it within 1-2 days. If you are pre-approved, you will receive an Approval Disclosure laying out all the terms and rates which you must sign and return. Once this document is returned, it takes about 10 business days for the disbursement to make it to your current lender.

How it Stacks Up

Minnesota SELF Refi is a great option if you are a Minnesota resident, especially if you have a diploma from an education that didn’t necessarily result in a four-year degree, or if you have a lower credit score, but still want to refinance with a cosigner.

There are other options out there, and some of them come with more competitive rates. What’s best for you will depend entirely on the dynamics of your own, unique situation.

SoFi’s student loan refinancing is one of the best on the market. Like Minnesota SELF Refi, it has no origination fee, but unlike most other loan refinancing products on the market, it does give you up to three months of essential deference should you ever lose your job, as long as you weren’t at fault. It also has a program for would-be entrepreneurs that defers payments for six months while SoFi helps you get on your feet through access to networking events, mentors, and investors. In addition, it offers an option to refinance over a 20-year period, and you can refinance as little as $5,000.

SoFi is very selective in who it will approve, though. It does not typically accept anyone with a credit score under 700, and cosigners are not always an approved option. It also does not offer refinancing for anyone with less than a four-year degree.

Another option that offers refinancing on a minimum of $5,000 with the 20-year term option is Earnest. Like SoFi, it does have a deference option if you enter financial hardship. Its deference period is one month out of every year, as long as you have consistently been making on-time payments for six consecutive months.

Earnest, instead of discriminating on your credit history, wants to see that you will have the ability to pay off your loan in the future. This predictive formula is unique, and can present an advantage to those with less than desirable credit scores. In Minnesota, only its fixed rate product is available, which has rates ranging from 3.50%-7.19%, competitive with Minnesota SELF Refi.

*Rates as of 1/1/16. Subject to change quarterly.

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