There are several banks and non-banking financial companies (NBFCs) present in India that offer education loans. It is common to avail student study loan and enjoy high-quality education. However, in a hurry to avail funds in time, many students forget to do adequate research before applying for an education loan and end up with a loan offer with high interest rates. But this does not mean that they have to stick to the same loan, especially if its terms and conditions seem unmanageable over time. Rather, the borrowers can opt for refinancing.

What is Student Loan Refinancing?

Refinancing the loan means paying off the existing education loan with the proceeds from a new loan, usually of the same size. It enables borrowers to avail of a second loan to repay the first but on more favourable terms. After one has graduated with their college degree, they would have to start repaying their education loan EMIs. However, it is difficult to make these payments in time if the EMI amount is too high. In such a scenario, refinancing can be a good way to make loan repayment easier and save money on the education loan. It allows borrowers to make their debt more manageable and lower the interest rates.

Lower Rate of Interest

As one opts to refinance their student loan, they would have the potential to save a good sum of money by landing a lower rate of interest.  Even though this may result in a longer repayment term, the arrangement would still be better than the previous loan in terms of the overall expenses. Even a minor difference in the interest rates can result in substantial savings over the long term. Borrowers need to do their research, and try to find the company providing them with the best deal on student loan refinance.

Lower EMI

One of the prime reasons why people may choose to refinance their loan is because their current EMI outgoings are much more than they can comfortably handle. Not being able to comfortably pay loan EMIs would increase the chances of defaults. Defaulting on the EMIs can subsequently hamper one’s credit scores, and also incur late fees. In order to avoid such eventualities, it is better to refinance the old education loan with a new one that has a lower rate of interest, and hence lower EMIs. The new loan is also likely to have a longer repayment tenure, providing the borrowers with such breathing space within which the debt can be paid off.

Chance to Improve Credit Scores

Defaulting on loan EMI payments can lower credit scores. On the other hand, making these payments in time can help improve the scores. By refinancing their student loans, borrowers would have an EMI amount that is easy to pay each month. As a result, they shall be able to improve their credit scores.

Broadly speaking, the reasons to refinance student loans are many. It can allow the borrowers to lower the amount of interest they owe each month, enabling them to save more on the loan EMIs over time. Refinancing may even assist people in selecting a more ideal payment plan for an education loan. Borrowers may either choose to pay off the loan over several years, or decide to make their payments more aggressively, to pay off the debt faster.