If you have a bad credit rating, refinancing your student loan can prove difficult. Getting rejected by lender after lender can hurt your confidence and make you feel like you’re out of options. However, there are a number of ways to refinance your student loan, even if you do have bad credit. Here are some tips for qualifying for refinancing:
Take the co-signer route
In most cases it’s not even worth applying for refinancing unless you have a co-signer. Most lenders encourage the co-signer option and will let you improve your application with a co-signer as long as they have a strong credit rating. Your co-signer will need a credit score in the high 600s to qualify for refinancing, with many lenders setting a minimum credit score requirement of anywhere between 650 to 680.
The new refinanced loan will then appear on the credit report of your co-signer, and in the eyes of the lender they will make it form part of the co-signer’s overall debt agreement. Ensure your co-signer is aware that if you miss a payment after refinancing, it will impact the co-signers credit rating. This can turn off many co-signers if they don’t trust that the borrower will continue to repay their loan.
If you shop around you may be able to locate a lender who will include a co-signer release clause in the lending agreement. This will provide you the option to remove the co-signer from your refinancing agreement if your credit score improves. For this to happen you would need to make a number of consecutive on-time loan repayments.
Improve your credit rating
It may seem obvious, but the best way to qualify for refinancing is to improve your credit score. Mark your calendar or set up automatic debit payments each month to ensure you always pay on time and remain within your credit limits.
You can check your credit reports to get a better idea of where you stand. There are a number of credit bureaus who will provide you with a free copy of your report. If you do this, make sure to go over it with a fine tooth comb to ensure there are no errors. If there are, make sure to dispute them and get them erased.
Increase your cash flow
Bad credit may not be the only thing holding you back from student loan refinancing. Cash flow is also a consideration lenders will scrutinize, looking at how much money you have remaining after your monthly expenses are paid.
Lenders are more likely to refinance with you if you have more disposable income. If you have poor cash flow you need to look at ways to either increase your income or cut back on expenses. Look for expenses that you can live without and cut your costs. Or boost your income with a side hustle such as uber driving or consulting.
What are other alternatives to student loan refinancing?
If you just can’t seem to get the approval needed to qualify for refinancing, don’t panic just yet. There are other options for you to consider.
1. Income-driven repayment plan: if you’re struggling to make your monthly loan repayments you may want to consider an income-driven repayment plan. This plan will reduce your monthly bill to an amount that’s tied to a percentage of your income. You unfortunately won’t save any money on interest with this option.
2. Federal student loan consolidation: Instead of refinancing, another way to potentially reduce your monthly payments is to consolidate your multiple loans into one. This means you only deal with one lender, with one interest rate and one monthly repayment. Your interest rate will likely remain the same, however you can reduce your monthly repayments by taking on a longer loan term.
So there you have it, if you’re struggling to qualify for student loan refinancing due to bad credit follow our tips above. It’s also worth looking into loan consolidation and income-driven plans as alternative ways of reducing your loan repayments.