When to Refinance Your Student Loan with a Signature Loan
Paying off your student loans can take time. When you’re in school mode, you assume that when you graduate you’re going to get an awesome job and be able to pay it all off in just a few years. It happens for some, but for most the only way to get rid of them is one monthly payment after another.
However, there is a faster, smarter way—take out a signature loan. Of course, like many things in life, there are benefits to doing this and there are consequences. Let’s talk about them.
What are the pros of taking out a signature loan to pay off student loan debt?
If you have multiple payments to make every month on student loan debt, one benefit right out the gate is that you’ll be able to consolidate all of those payments into one monthly payment. It makes things easier for you, and it is likely to free up some cash each month. Use your leftover cash to further throw at your premium, and you’ll pay off your loan a little faster.
Another possible benefit is that, if you have a solid credit score, your APR might be less than what you currently have. A lower APR means you’ll spend less money on interest with every payment.
Lastly, if you cosigned with anyone, your cosigner will no longer have any responsibility on your student debt should you fail to make payments. For many, this is reason enough.
What are the cons of refinancing a student loan with a signature loan?
- Interest you pay on student loan debts is normally tax deductible. If you pay off your student debts with a signature loan, the interest you pay on your signature loan will no longer be tax deductible (because it’s then an entirely different type of loan). This means you’ll end up paying Uncle Sam even more come tax time.
- Your student loan will no longer have protective plans in place for you. With government loans, if you have trouble making payments, you can generally get your monthly payments lowered so the amount is reflective of your net income, or you can even get all payments paused should you lose your job.
- Unlike student loans, signature loans don’t offer debt forgiveness after certain amount of time has elapsed. They won’t be erased, and you will pay on them until you have repaid the full amount.
When to do it?
If you want to pay off your loan fast, a signature loan can help you do just that. Ideally, you will want to have a strong credit score so your signature loan’s APR is lower than your student loan’s APR. As stated, for many people knowing that their cosigner is no longer financially accountable is reason enough. Before you commit, take a look at how long you would have until loan forgiveness would kick in. If you just have a few years left, you might want to wait.