If you’re looking to lower your monthly payments or save money on your student loans, refinancing is one option to consider. This post covers how to calculate your new monthly payment after refinancing.
Checkout this video:
Assuming you qualify, refinancing your student loans can be a great way to save money. But how do you know how much your new monthly payment will be?
It’s actually pretty simple to calculate. Just follow these steps:
1. Determine the interest rate on your new loan.
2. Subtract any rate discount you may receive from that rate.
3. Add any origination fee that may apply to that rate.
4. Determine the number of payments you’ll make over the life of the loan.
5. Calculate your monthly payment using a loan repayment calculator.*
*Note: You can find a variety of loan repayment calculators online, like this one from Credible.com.
Now let’s take a closer look at each of these steps.
What You Need to Know Before Refinancing
When you refinance your student loans, you basically take out a new loan to pay off your existing student loan debt. Your new loan will have different terms and conditions than your original loan, which means that your monthly payments could go up or down.
To figure out how much your new monthly payments will be, you’ll need to know:
-The total amount of money you’re borrowing
-The interest rate on your new loan
-The repayment term on your new loan
With that information in hand, you can use a student loan repayment calculator to estimate your monthly payments. Many online calculators will also let you compare the monthly payments on your new loan with the monthly payments on your existing loans, which can help you decide if refinancing is the right move for you.
How to Calculate Your New Payment
To calculate your new payment, first you’ll need to know your loan balance, interest rate, and repayment term. Then, you can use a student loan refinance calculator like the one below to estimate your monthly payments.
Here’s an example:
Let’s say you have a $10,000 loan with a 6% interest rate and a 10-year repayment term. If you refinance to a 5-year repayment term, your new monthly payment would be approximately $190.
To calculate your exact payment, enter your loan information into the student loan refinance calculator below.
The Benefits of Refinancing
If you’re struggling to make your student loan payments each month, you may be considering student loan refinancing as a way to lower your monthly payments and save money on interest. But how do you know if refinancing is the right move for you?
To start, let’s take a look at how student loan refinancing works. When you refinance your student loans, you’re essentially taking out a new loan with a lower interest rate to replace your existing loans. This can help you save money on interest and lower your monthly payments.
There are a few things to keep in mind before you refinance your student loans:
-Refinancing is only available for private student loans; federal student loans cannot be refinanced.
-You may not be able to deduct the interest you pay on your taxes if you refinance with a private lender.
-If you have trouble making payments on your new loan, there are fewer options for forbearance or deferment than there are with federal loans.
With that said, let’s take a look at some of the benefits of refinancing your student loans:
-Save money on interest: When you refinance your student loans, you can choose a new repayment term that better suits your needs. For example, if you have $50,000 in student loan debt at an 8% interest rate and 10-year repayment term, you’ll end up paying $583 per month and a total of $69,960 over the life of the loan. If you extend your repayment term to 15 years, your monthly payment will drop to $395 per month—but you’ll end up paying more in interest over the life of the loan ($79,650). On the other hand, if you refinance at a 5% interest rate for 15 years, your monthly payment will be $462—and you’ll save more than $10,000 in interest over the life of the loan. In this case, it makes sense to choose a longer repayment term in order to get a lower interest rate and save money on interest.
-Lower your monthly payments: If lowering your monthly payments is your primary goal, then extending your repayment term may be the best option for you. As we saw in the example above, extending your repayment term from 10 years to 15 years will lower your monthly payments from $583 per month to $395 per month—a savings of $188 each month.
-Pay off your loans faster: If saving money on interest isn’t as important to you as paying off your loans quickly, then choosing a shorter repayment term may be the best option for you. For example, if we take our previous example and choose a 5-year repayment term instead of 15 years, our monthly payment will increase to $760—but we’ll save more than $7000 in interest and pay off our loan five years sooner.
The Drawbacks of Refinancing
Before moving forward with refinancing your student loans, it’s important to understand all of the potential risks and drawbacks.
One of the biggest considerations is the length of your loan term. When you refinance, you have the opportunity to extend your repayment term. This can lower your monthly payments, but it also means you’ll be paying more interest over the life of the loan. In some cases, it may make sense to go with a shorter loan term so you can pay off your debt more quickly.
Another thing to keep in mind is that federal student loans offer certain protections and benefits that private loans don’t. For example, if you lose your job or become disabled, you may be eligible for forbearance or deferment on your federal loans. And if you decide to go back to school, you can usually get a grace period on your federal student loans. You won’t find these same protections with a private lender.
Before you refinance your student loans, weigh all of the potential risks and benefits so you can make the best decision for your unique situation.
How to Decide if Refinancing is Right for You
The first step in deciding if refinancing is right for you is to understand how student loan refinancing works. Student loan refinancing is when you take out a new loan with a lower interest rate to pay off your existing student loans. This can save you money on interest and lower your monthly payments.
To decide if refinancing is right for you, there are a few things to consider:
-How much can you save?
-What are the terms of the new loan?
-What are the fees?
-What is your credit score?
-Can you afford the new monthly payment?
If you can answer these questions and feel confident that refinancing is right for you, then it’s time to compare lenders.