5 REASONS YOU NEED A CO-SIGNER WHEN REFINANCING STUDENT LOANS
Student loan repayments are a drag, especially when you find yourself in a financial bind. It is important that you never simply allow your student loans to default due to financial struggles. Fortunately, there are several different options for you when you feel like your student loan payments are too much per month or you feel like the interest rate is just too high.
Student loan refinancing is one option that is available to you and will help bring down your interest rate on your student loans, which will result in less money paid in interest over the course of the loan. You may also receive a lower monthly payment when you refinance.
If you have considered student loan refinancing, now is the time to think about applying, but before you head to your local lending institution, you may want to consider having a co-signer available to help you. A co-signer is someone else who meets the minimum application requirements who is willing to accept responsibility of the student loan should you default or not make your payments. There are many reasons why you should try to use a co-signer and we will explore them below.
You Can Secure Lower Interest Rates
When it comes to your student loan refinancing application, the biggest benefit of having a co-signer is that you will receive a lower interest rate on your student loans. If your co-signer has a great credit score, you can lock in an interest rate that is very low. In fact, many students can receive fixed loan interest rates of just 4 percent and variable rates as low as 2.2 percent.
The actual interest rate that you receive will depend on both you and your co-signer, but in many cases, your rates are much lower with a co-signer. It is important to also pay attention to the type of rate you choose because variable rates are lower initially, but they can fluctuate over the course of the loan.
Your Application Will Be Approved
A co-signer is a wonderful asset to your student loan refinancing application and can help improve your chances of being approved. Studies that have been performed have showed that students without a co-signer were only approved for refinancing about 20 percent of the time. Students who applied with a co-signer received approval more than half of the time.
The reason behind this is because your co-signer can help strengthen your application on both the credit and financial side.
Cosigner Release is Available
One of the reasons why you may want to have a co-signer on your student loan refinancing application is to receive the approval you desire. Fortunately, your co-signer will not be tied to your student loan forever and most lending institutions will allow your co-signer to be removed from the loan after an extended period.
Typically, a co-signer can be released from the loan somewhere between 12 and 36 months. Co-signer release is when the co-signer is no longer liable for your student loan. Of course, before the co-signer will be allowed to remove themselves, you must prove that you can make the payments and that you can make them on time. If you do this, then your co-signer does not have to make a lifelong commitment to your student loans.
You Can Improve Your Credit Score
Once you refinance your student loans, you will be able to remove your co-signer later down the road and this will allow you to boost your credit score. While you have a co-signer on your student loan, you can still buildup your credit as you make payments monthly. It is important to pay attention to your due dates and not miss them because if you do, not only do you hurt your own credit, you hurt your co-signer’s credit as well and this can lead to complications between you and your co-signer.
You Will Meet the Income Guidelines
Lastly, a co-signer will allow you to meet the income guidelines to refinance your student loans. Often, undergraduate students will not be able qualify for student loan refinancing on their own because they do not meet the income guidelines. Typically, banks will require you to make a certain amount of money monthly and yearly, as well as, you must have held your position at your current job for a certain amount of time. If you cannot meet these, then you will not receive approval.
Your co-signer will be able to help you meet the needed income to receive the approval on your student loan refinancing application.
Final Thoughts on Student Loan Refinancing
It is important for you to consider a co-signer when you apply for student loan refinancing. Many undergraduate students will not be able to meet the minimum requirements to receive a loan approval. Typically, lending institutions will rate your risk level based on your credit history, employment, and past obligations. Even if you have a good credit history, you may still be considered a risk to the lender and therefore, your application will be declined.
Adding a co-signer to your student loan refinancing application can help improve your chances of being approved and it lessens the risk that the lender will experience. Co-signers can be anyone who meets the minimum qualifications needed to apply for the loan, but it does help to make sure that the co-signer has good credit, a positive credit history, and a hearty income.
On a final note, when you look for a co-signer, you should try family first, but do know that it is your responsibility to continue to pay back your student loans. Your co-signer will ultimately end up with your debt if you stop making the payments and this can stress relationships.
If you ever find yourself in need of financial help or you are unable to make your payment one month, talk to your student loan lender as they may be able to help you.