5-year variable-rate loans

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For borrowers looking to pay off their student debt more quickly, five-year variable-rate loans were averaging 2.59% last week, according to fresh data released Monday by the Credible marketplace.

That’s up just slightly the previous week's average of 2.57% — and not far from the record low of 2.53% reached a few weeks ago in late August.

The average is specifically for borrowers with credit scores of at least 720. Better rates are available for people with excellent credit, of 780 or higher.

At the other end of the scale, people with so-so scores (between 640 and 679) are bagging typical rates of 4.59%.

Keep in mind that variable rates fluctuate based on market conditions, meaning a borrower could wind up with a higher rate before the loan's five-year term is up.

10-year fixed-rate loans

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For borrowers who want a longer payback period and the ability to lock in a good deal, 10-year fixed-rate loans were averaging 3.46% during the most recent survey week.

That’s up just a smidge from an average 3.45% a week earlier, and it's still pretty close to late September's all-time low of 3.36%.

Again, those with excellent credit qualify for lower-than-average rates. And, those with unimpressive scores might have to accept a rate of 4.77% or higher.

Though fixed-rate loans come with stiffer borrowing costs than the variable-rate variety, your interest rate is guaranteed to hold steady over the life of the loan.

A 10-year loan also will offer more affordable monthly payments than a five-year, though you’ll spend more money overall by the time your debt is paid off.

How to secure the best refi rate

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If you have a federal student loan, make sure you know what you’re giving up before jumping into a refi.

Switching from a government loan to a refinance from a bank or other private lender will make you ineligible for the kind of government support some borrowers have enjoyed during the pandemic, including payment freezes, interest waivers and even loan forgiveness.

But if you’re OK with that tradeoff, or if you already have a private loan, refinancing to a cheaper rate could make a huge difference in your budget.

Here are some tips to help you snag the best possible refi rate:

  • Polish up your credit score. Lenders review your credit to determine whether you seem like a good risk. Today it's easy to check your credit score for free, then take steps to spiff it so you'll look more impressive to a lender.

  • Set up auto-pay. Often, you can shave a little off your interest rate by agreeing to make automatic payments. That provides some assurance to the lender that you'll pay on time every month.

  • Consider a co-signer. If your credit score is 200 points south of where it should be, you may need to ask a friend or family member with good credit whether they'd be willing to co-sign your loan, to help you land a better rate. But be careful, because your co-signer will be left holding the bag for your payments if you ever have to stop making them.

  • Compare your options. The student loans universe is vast, made up of dozens and dozens of lenders. The only way to know you’re getting a good deal is to shop around. Different lenders are bound to weigh your application differently, so always get multiple rate quotes and size them up side by side before you click "Apply."

About the Author

Chris Murray

Chris Murray

Freelance Contributor

Chris Murray is a freelance contributor with Moneywise.com

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