It might be difficult to refinance student loans with negative credit unless you have a co-signer.
To be eligible for student loan refinancing, you or your co-signer should have a credit score in the upper 600s. Lenders’ minimum credit score requirements often vary between 650 and 680.
If you have weak or no credit, you may still be able to refinance your student loans utilizing one of these methods.
Refinance student debts with a cosigner.
If you have terrible credit, the easiest solution is to refinance with a co-signer who is in a better financial position. Most lenders would enable you to strengthen your application by adding a co-signer, but Earnest is an exception among top student loan refinancing businesses, as it does not allow consumers to apply with a co-signer.
The refinanced loan will appear on your co-signer’s credit record, and lenders will count it as part of the co-signer’s total debt burden. Any missed payments will have a bad impact on your co-signer’s credit score, and he or she will be compelled to pay if you are unable to.
Some refinancing lenders provide co-signer releases. This allows you to remove the co-signer when your credit has improved and you have made a set number of on-time payments.
Improve your credit.
If you don’t have a co-signer, improve your credit before applying. Pay all bills on time and keep well below your credit limit.
To determine where you stand, obtain your credit score and review your credit reports. You may obtain a free copy of your report from each of the three main credit agencies once a year at annualcreditreport.com. If you spot any mistakes in your report, dispute them to get them removed.
Increase your cash flow.
Bad credit is not the only reason you may be rejected student loan refinancing. Lenders also consider cash flow, or the money left over after you’ve paid your usual monthly costs like rent and vehicle payments.
According to the lenders, the more cash available, the more likely you are to repay a refinanced debt. To enhance your cash flow, either raise your revenue or decrease your spending.
Consider paying off an outstanding credit card load or supplementing your income with a side business, such as consulting, freelancing, or using one of the numerous “sharing economy” applications, to improve your debt-to-income ratio.
Student debt refinancing options
Sometimes refinancing is not the best option. Even if a co-signer helps you restructure student loans with terrible credit, your monthly payments may remain unsustainable if your loan debt is significantly more than your income.
Consider one of these alternatives, based on your objectives and financial position.
Making payments more affordable: If you have federal student loans and cannot afford monthly payments, the best approach is to enroll in an income-driven repayment plan. You’ll receive a lesser monthly charge based on your salary and repay the loan over 20 or 25 years. You will not save interest, but your debt will be forgiven at the conclusion of the payback period.
To simplify your expenses with a single monthly payment, consider federal student debt consolidation, which combines numerous loans into one. Unlike refinancing with a private lender, it does not reduce your interest rate. However, it might reduce your monthly payment by extending the loan period.
