Did you apply for student loan refinancing and get denied? First, don’t panic! You may still be able to reap the benefits of student loan refinancing in the future. Here is what you can do now to set yourself up for future success.
Find Out Why You Were Denied
It’s important to find out why your application was denied so that you can know what to do differently in the future. Did you not meet the minimum required credit score? Was your credit history length not long enough? While each student loan refinancing provider has its own specific criteria, there are some general requirements that are common among nearly all of them. Most lenders require:
- A minimum credit score in the 600s
- A debt-to-income ratio of 50% or less
- A credit history of at least 3 years.
- Some providers want to see verification of employment, while others will allow refinancing while you are in school.
At ELFI the requirements for student loan refinancing include:
- A minimum credit score of 680
- A minimum credit history of 36 months
- A minimum income of $35,000
- Check out the full list of eligibility requirements for student loan refinancing.
1. Fix the Problem
After you have been turned down for refinancing, it is a good idea to obtain your free credit report to get an idea of any negative credit history you have. Once you have obtained your credit report, be on the lookout for any suspicious items or mistakes (they do happen!) and look for areas where you can improve. For example, if your credit utilization rate is always around 50%, you will want to work to lower that to 30% or less. If you were denied because your credit score was too low or you have a negative credit history, having a cosigner apply with you may allow you to meet the minimum requirements. Need help improving your credit score? Here’s our full guide on how to get a winning credit score.
2. Side Hustle in the Meantime
If you need to take time to improve your credit score before applying to refinance again, try starting a side hustle. A side hustle could be a part-time job at a retail store, babysitting, selling items that you make, or anything in between. The extra money you earn from your side hustle could make your current student loan payments more manageable in the meantime. In addition, the extra income may help in meeting the refinancing qualifications in a few ways:
- If you did not have the minimum income with your day job, extra income can help you satisfy that requirement.
- Extra income will improve your debt-to-income ratio. The debt-to-income ratio is calculated by adding all your monthly debt obligations, including car payment, student loan payment, and mortgage payment and dividing the total payments by your income. For example: if your total monthly debt payments are $1,800 and your income from your job is $3,500 your debt-to-income ratio is 51%. If you are able to earn an extra $200 per month from your side hustle, your income would increase to $3,700 and your debt-to-income ratio would drop to 49%, which would allow you to meet the general requirement of a ratio under 50% for most lenders.
- The extra income will allow you to pay other debt down faster, which is another way you can lower your debt-to-income ratio.
3. Wait and Apply Again
If you figured out why you were denied and it is a credit problem you can improve, it’s a good idea to wait and apply again after you have raised your score. Refinancing student loans is a smart decision for a lot of people because of the amount you can save on your monthly payment and in the amount of interest over the life of the loan. For example: If your student loan debt is $75,000 with a 7% interest rate and 10 years remaining on the loan, if you refinance and qualify for a 4.99% interest rate with the same 10-year loan you could save up to $76 per month and $9,083 in interest over the 10 years. Clearly, refinancing can be incredibly advantageous. To get an estimate of how much you could save check out our Student Loan Refinance Calculator.*
4. Apply Around
Since companies set their own requirements for refinancing, one denial does not mean that all companies will deny you. However, before you go on an application spree, keep these things in mind when considering how to refinance student loans with bad credit:
- Applying too often could negatively impact your credit score. Each time a lender processes your application and requests your credit report this can lower your score. Tip: If you apply to multiple lenders in a small time frame, the requests for your credit report may only count as one request and therefore affect your score less.
- Find a reputable company. You want to be sure that the lender you are applying with is well established, has good reviews and makes the process easy. At ELFI we pride ourselves on great customer service and making the refinancing process simple.* When you refinance, you are assigned a personal loan advisor that walks you through the process and is available to answer your questions.
- Waiting to apply with a higher credit score could save you more money. If a low credit score is holding you back, it may actually work in your favor to improve your financial situation before applying again. By doing so, you will likely qualify for a lower interest rate and save more money. With that said, if you’re eager to refinance now and are approved by a reputable lender, you can always refinance your student loans again if it is financially beneficial.
Bottom Line
Just because you have been turned down for student loan refinancing doesn’t mean you will never be able to refinance your student loans. With these options in mind, you can plan out your best course of action so that you can qualify in the future.
*Subject to credit approval. Terms and conditions apply.
