Understanding interest rates: fixed vs. variable rates
First, you’ll want to understand all your current options. Do you have federal or private student loans? Is consolidating or refinancing the best option? How will current interest rates impact your loans? If you decide to refinance your loans, how can you find the best student loan refinance rates? First, let’s talk about interest rates.
A fixed interest rate is an interest rate that generally stays the same for the life of a loan, or for a portion of the loan term, depending on the loan agreement. The advantages may seem clear, you’ll pay a set amount of interest on your loan and it won’t go up or down with the prime rate or other index rates, so you’ll know exactly how much you’ll pay each month.
A variable interest rate on the other hand can change periodically and rates may fluctuate with market conditions, meaning your monthly payment can also go up or down. But a variable rate often offers lower rates, and if interest rates drop then you could save money over the life of your loan. You can learn more about how variable rates are calculated here.
While all federal student loans have fixed interest rates, if you work with a private lender, you’ll often have a choice between a fixed or variable student loan refi rate. Deciding between a fixed or variable rate may come down to your tolerance for risk. Would you rather lock in a rate for the life of the loan, or take the chance to get a lower interest rate and potentially save along the way? When you choose between variable or fixed rate loans, think about whether having some uncertainty in the mix is worth the potential savings. For example, if you plan on paying off the loan quickly and have the means to do so, a variable rate could be a smart choice that ultimately saves you money.
How Laurel Road’s student loan refinancing rates compare
Each private lender has its own criteria for determining eligibility and rates, such as credit history, total monthly debt payments, and income. There are many factors that go into an offered rate for refinancing your student loans, including the type of loan, your financial history, credit score, and more.
