Companies offer student loan refinancing for 1.74%. Are these legit?

Thinking about refinancing your student loans? Here’s what you should know before you do it.

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The other day I saw a student loan refinance being advertised with interest rates starting at just 1.74%. And I immediately thought: can anyone really qualify for such a low rate? So I turned to experts who said yes, there are a number of rates below 2% that some borrowers can get. Here’s what you need to know about them.

There are two key factors that could drive a borrower to earn an APR on a student loan refinance below 2.00%: Smart shopping and your financial credentials. “Getting the best student loan refi rate comes down to how qualified you are, but it also depends on how well you look around,” says Anna Helhoski, student loan expert at NerdWallet.

But first there are a few things you should know. “APRs below 2.00% advertised by reputable lenders are really only available in the form of variable rates, which are not suitable for every borrower. Unlike fixed rates, variable rates typically start out lower but rise over time and fluctuate according to market forces that the average borrower cannot control,” says Andrew Pentis, Certified Student Loan Advisor and Education Finance Expert at Student Loan Hero. This means that variable rate loans can make sense for very short loan periods, while a fixed rate loan – thanks to the very low interest rates now on offer – makes sense when your repayment period is longer.

Furthermore, “Floating rates below 2.00% are really only available to the crème de la crème of creditworthy borrowers. If you have excellent credit, a particularly favorable debt-to-income ratio, and otherwise a stable financial and career history, you have a chance at these extremely low APRs,” Pentis adds. That likely means a credit score of at least 760 and a debt-to-income ratio of under 15%. Adds Helhoski, “Unless you have excellent credit and a low debt-to-income ratio, or a co-signer who does, you’re not going to get the lowest interest rates.”

It’s more typical to get a single-digit interest rate on student loans that’s slightly higher. Data from Credible shows that interest rates for borrowers with at least 720 credits average 3.60% for 10-year fixed-rate loans and 2.96% for 5-year variable-rate loans. To get the best interest rate, you should compare APRs and promotional or loyalty discounts from multiple lenders, says Helhoski. Also consider shortening the term of your loan if you can afford it: “You can get the lowest interest rate with the shortest term – but the trade-off for paying less interest over the life of the loan is a higher monthly payment amount” , she adds .

Because most typical student loan refinance rates are in the single digits, they can be a real opportunity for borrowers with high-yield federal or personal loans to save significantly. Just remember that when you refinance your federal loan into a personal loan, you risk losing the built-in federal loan protection. “Refinancing is particularly beneficial for private student loan borrowers who may have double-digit APRs tied to their original debt. With at least a few years of positive credit history and perhaps a co-signer, they can reasonably expect to qualify for a single-digit APR closer to the 7.00% range,” says Pentis. He adds: “If you have a federal parent PLUS loan at over 7.00% interest but have a creditworthy refi application, you could potentially be offered a fixed rate of under 5.00% or even lower. And that could save borrowers hundreds or even thousands of dollars in interest, depending on the loan size and loan term.

If refinancing makes sense for you now, you should shop around to get the best student loan interest rates possible, in addition to keeping your loan in good shape, according to Rebecca Safier, certified student loan advisor and education finance expert at Student Loan Hero. “Many lenders allow you to pre-qualify online without affecting your credit score. By looking around you can find the best refinancing offer. You can also check with your bank or credit union to see if they refinance student loans and offer special interest rate discounts for bank customers,” says Safier.

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