Our social:

Friday, September 2, 2016

Fixed vs. Variable Rate Student Loans: Which Should You Choose?

Image result for Fixed vs. Variable Rate Student Loans: Which Should You Choose?

When it comes to student loans and student loan refinancing, interest rates play a huge factor. Your interest rates can affect how much money you will end up paying back over time; high rates can make it difficult to get ahead in your repayment.
It’s important to know there are actually two types of interest rates: fixed rates and variable rates. Many of us did not have a choice between fixed or variable rates when we signed on for student loans, but if you’re applying for student loan refinancing the choice is yours.
So how do you know which is best? We’re here to break it down for you.

Fixed Rate Student Loan

A loan with a fixed interest rate means you’re locked into that rate for the life of your loan. Having fixed rate loans can help you predict how much you will pay in interest and keep your interest payments at manageable levels. Fixed rates tend to be higher than introductory variable rates — but they’ll never change, so you know what you’re in for.

Variable Student Loan Rates

Variable student loan rates are just that — variable. They can change at any time. These rates tend to be related to the current Fed and LIBOR rates, which serve as benchmarks for many types of interest rates on loans, from mortgages to credit cards — and yes, student loans.
Interest rates have been at historic lows for the last several years, allowing borrowers to enjoy relatively cheap debt (the lowest rates are reserved for those with excellent credit scores). For example, student loan refinancing candidates with good credit could potentially get a variable rate at 1.9%.
However, interest rates can rise (in fact, as of Wednesday, they did). When this happens, a low-interest loan could jump to a higher rate and affect monthly payments.

Fixed Rate vs Variable Rate: Which One is Right for You?

If you have federal student loans, you have fixed interest rates no matter what — which can be a blessing or a curse. My undergraduate loans are at the low rate of 2.3%, while my Graduate PLUS loans are 6.8% and 7.9%. That’s a big difference.
While I’ve benefited from the low interest rate on my undergraduate loans, I’ve felt insanely frustrated with how high my grad school loan interest rates are.
This is why student loan refinancing is an attractive option for so many — through refinancing, you have the potential to get a lower interest rate, effectively saving you thousands of dollars.
If you have private student loans, you may have variable interest rates that can fluctuate at any time. As long as rates are low, you can save thousands of dollars in interest charges.
So which is best? A few things to consider first:
  • How long will it take you to pay off your loans?
  • What type of interest rate feels most comfortable to you? (it’s not all about the math)
  • Does the variable loan have a rate cap?
These questions are important to answer to get a full scope of your financial picture. A variable interest rate may be a good option if you can pay off your loans in a few years or less, before rates climb too high.
Also, consider what type of interest rates you currently have. Perhaps you have private student loans with variable rates and are looking for the stability of a fixed rate.
Lastly, look at the overall savings. How much will you save by refinancing in general? How much will you save in interest by choosing a variable rate over a fixed rate?
LendKey offers the following example:
As you can see from this example, variable rates can definitely save you money, especially if you have a shorter repayment term — even if rates increase.
Before you choose which one is right for you, look closely at your repayment term and consider your level of risk tolerance. If your repayment period will be 20 years and you like stability, a fixed rate may still be a better option for you.


Post a Comment

Hello Every One thanks For Visit My site You Can Suggest any Idea About site And Related Education Information Provide me Its Best Content For you am Include in this Site And feel free contact And email now I hope This site very help full you