This post is about why I got a lower interest rate the second time I refinanced my student loans. This post is a reminder that if you didn’t get the best interest rate the first time you refinanced you can work on a few key areas and try again in a year or two.
Estimated read time ~4 min.
*Links to refinancing companies in this post are referral links which means I may get a referral bonus if you refinance your student loan through one of them. All the links (except CommonBond) also offer you a referral bonus when you use it! All the companies I link to are companies I have researched and trust or have used myself.*
I first refinanced $99,000 in June of 2016 and got a variable rate offer of 3.36%, my fixed rate offers were all over 1% higher so I decided to take a chance on the variable rate. Over the course of the next year the rate crept up to 4.1% so I decided it was time to refinance again.
Start looking into refinancing again if your variable interest rate has crept up significantly and you’re currently a better refinancing candidate.
I used the rate estimators on all the refinancing company websites I was familiar with. That narrowed my playing field to three refinancing companies based on interest rates alone, Earnest, ELFI, and CommonBond. Unfortunately SoFi’s estimates were at least 1% higher than the rest. So I submitted formal applications to these three companies.
Use the rate estimators on multiple refinancing company websites to decide where to submit formal applications so you get the best interest rate.
After submitting formal applications I got approved for refinancing by all three companies and now had some leverage. At that time my loan was serviced through Earnest and when I was obtaining required documentation from them for the formal applications they told me to contact them if I got a more competitive rate. ELFI gave me the most competitive interest rate so I contacted Earnest to see what they could do. At first they said they couldn’t match the interest rate but later that day I was contacted and they offered to match the ELFI’s rate and I was able to refinance for a 3.37% fixed rate over a 5 year term.
If you’re already working with a refinancing company you like, use market competition to lower your interest rate.
So how did I get a lower interest rate just over a year later? It wasn’t because the market improved, in fact it had gotten slightly worse as evidenced by my increasing variable interest rate.
The second time I refinanced I owed $26,000 less on my student loan principal and owed less on my auto loan. I also had a slightly higher increase in my full-time salary. All this means my debt-to-income ratio looked much better than it did the year prior.
Over time your debt-to-income ratio will get better as you pay down your debt and as you increase your income.
By the second time I refinanced I had more assets too. My employer-sponsored 401K performed well and I continued to contribute and get my employer match so had an additional $20,000 in that account. Building my savings account was a big focus in 2017 so that account also had more cash.
Grow your assets. Making consistent contributions can increase your assets by tens of thousands of dollars.
Finally my credit score continued to improve based on responsible credit use and the age of my credit history. By the time I refinanced the second time my credit score was 783 which was around 50 points better than before. One thing that often plagues us young folks is the relative age of our credit history. I was a late comer when it came to credit cards so my history now is only about 7 years old. It’s not terrible but it’s also not even close to as long a history as say my parents have.
Continue responsible use of credit cards to improve your credit score. Keep your oldest account open if you have relatively “young” credit history.
Have you refinanced your student loans a second time? Are you considering refinancing for the first time? Let me know in the comments below or on the Repayable Facebook Page!
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