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LIBOR Rates, Historical LIBOR Rates, and Variable Rate Loans

November 15, 2016

Variable rate loans have interest rates that vary and are based on a financial market index that changes over time. One very well-known financial market index that many variable rate loans are based upon is the London Interbank Offer Rate, or LIBOR. Understanding this financial index and how it is determined is important when evaluating variable rate loan products.

What are LIBOR Rates?

LIBOR is a benchmark rate that banks charge each other to borrow money. More important to borrowers, however, is that this rate is the first step involved in calculating short-term interest rates on a variety of loans — like student loans, mortgages, credit cards, etc. LIBOR is determined daily and is based on rates that a reference panel of banks can borrow from other banks on the London market for each calculated currency, including the U.S. dollar (USD), Euro (EUR), pound sterling (GBP), Japanese yen (JPY), and Swiss franc (CHF).

 

You may have noticed that the definition of LIBOR is included when calculating rates for variable rate loans. LIBOR’s seven available maturities and associated rates are: overnight, one week, and 1, 2, 3, 6, and 12 months. These maturity figures state the cyclical duration for which the variable interest rate can change on your loan. For instance, the interest rate on a one-week term can change weekly, and the 3-month term can change every 3 months (or quarterly). Because these cyclical changes may change your loan’s interest rate, it is important to note that your monthly payment and the total expected interest owed over the life of the loan may change as well.

 

To see which maturity is associated with your variable rate loan, look for the timeframe before the word LIBOR found on your promissory note. You can also read the loan agreement to understand how often the interest rate is subject to adjustment and understand how to identify the correct index amount.  For example, Education Loan Finance’s variable rate loans are subject to adjustment quarterly based upon the 3-month LIBOR, while other lenders may adjust rates more frequently by basing rates upon the 1-month LIBOR.

LIBOR Changes and Your Interest Rate

While variable rate loans, whether refinanced or not, tend to have starting rates that are often lower than fixed loan rates for the same maturity date, these variable rates can change after you close on your loan — including the possibility to increase over the life of your loan. Changes in LIBOR result in changes to your variable rate loan’s interest rate.

 

Here is how it works: If the 3-month LIBOR is 0.4 percent and Education Loan Finance’s (or your lending institution’s) margin is 3 percent, then your monthly rate would be 3.40 percent for those three months. However, if the 3-month LIBOR changes to 1 percent in the next quarter (remember, this scenario is working on a 3-month cyclical change), then your monthly rate would increase to 4 percent for those next three months.

 

If the LIBOR increases dramatically to a rate such as 15 percent, Education Loan Finance actually puts a 9.95 percent interest rate cap on the interest rate that you will be charged for 5, 7, 10, 15, or 20-year variable rate loan terms. This means that no matter how high the LIBOR rate increases, you will never pay more than 9.95 percent interest on the aforementioned variable rate loans if you choose a variable rate loan and refinance your student loan with Education Loan Finance.

 

What are Historical LIBOR Rates?

Historical LIBOR shows borrowers and consumers the variability in rates over the years. These historical data provide insight into the magnitude of LIBOR rate changes in the past.

 

Historical LIBOR rates can be reviewed and downloaded here. Simply change the frequency to the desired maturity and make sure the date range is accurate. Scroll down and select ‘download data’ to view the rates for your selected time period. Another option is to view multiple maturities at one time, over thirty years, on this scrolling chart. Whichever you choose, please note that these links are provided for historical purposes only. You should always refer to the terms of your promissory note for details  — like date, source, time period — on how the rate for your loan will be determined.

 

Like many lending or refinancing institutions, Education Loan Finance’s variable rate loans are tied to 3-month LIBOR rates, which means they are subject to change based on this publicly available index. The big takeaway is that while there are no guarantees with variable rates, they do tend to start at lower rates than rates on fixed-rate loans with the same term. If you decide to initially refinance your student loan debt with a variable rate loan product, just remember that if rates begin to increase, you can refinance again in the future with a fixed rate loan from Education Loan Finance at no cost to you.

 

Top Tips for Finding the Perfect Lender to Refinance Student Loans

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2019-09-22
5 Common Questions About Student Loan Refinancing

Deciding to refinance your student loans is a big step in your financial journey. As with any big step, there are often questions that arise. We’re sharing some of the most common questions our Personal Loan Advisors hear from borrowers looking to refinance their student loans. 

1. Will my refinanced student loan have a variable or fixed interest rate?

Either! Education Loan Finance offers both fixed and variable interest rates, giving you the freedom to choose.  Fixed interest rates will not change from year to year, but variable interest rates will fluctuate based on the
LIBOR index and may increase or decrease over the life of the loan. Read our blog about variable and fixed interest rates to learn more.  

2. How long will the application process take?

You’ll be done before you know it! The application process is quick and easy. After providing some information about yourself and your student loans, you’ll upload documents and submit the application. If you refinance your student loans with ELFI, you’ll receive a Personal Loan Advisor who will be your point of contact throughout the process – one person who’ll be with you step-by-step.

3. Can I consolidate both federal and private student loans?

Yes! ELFI allows you to consolidate federal student loans as well as private student loans from multiple lenders. As long as they are student loans, ELFI can consolidate them. However, only student loan debt can be consolidated – no other consumer debt, such as credit card, auto, or mortgage can be included, even if it was used to pay education expenses. 

4. Can I consolidate my student loans with my spouse’s student loans?

While spouses are eligible to serve as a cosigner on an application, we cannot consolidate student loan debt among multiple borrowers – even if they are hitched! 

5. Will the application process affect my credit score?

We’ll run a “soft credit inquiry” during the pre-qualification phase of refinancing in order to provide you with preliminary rates that you may qualify for. A Soft credit inquiry won’t affect your credit score. However, once you choose your loan product and submit your application, we’ll need to view your full credit report – this will show up as a hard credit inquiry. These inquiries are common among student loan refinancing lenders.   Hopefully this short Q&A gave you some helpful insight about what to expect when refinancing your student loans. If you have questions about the student loan refinancing process, you can check out our full list of frequently asked questions or contact ELFI at 1-844-601-3534 to speak with a Personal Loan Advisor. 

Learn More About Student Loan Refinancing

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