Refinancing your student loan or consolidating several loans into just one loan gives you the ability to achieve a more manageable monthly payment or alter the lifetime length of the loan. If you have private student loans especially, refinancing usually results in saving you money. As part of the loan approval process, most lenders will require you to supply references. There are three main reasons lenders ask for references:
Identity Verification
The first and most basic purpose of a reference is simply to make sure you are who you say you are. Loan fraud is not uncommon and lenders need to protect themselves and reduce their risk. If you can provide references who can vouch for your identity, the lender is more likely to trust you and, if you meet the lender’s other requirements, to proceed with refinancing your student loans.
Contact Information
References also provide a way for a lender to get in touch with you if you fail to make a payment and they are unable to reach you directly. By providing references for people with whom you are close, you are providing the lender with additional options for contacting you. Again, this helps to reassure the lender that you are trustworthy.
Information Checks
References allow the lender to make sure the information you provide (such as your place of work, your salary, your banking and credit history) is correct and current. The information gathered by the lender can determine whether you are approved or not and affect several aspects of your loan if you are approved.
How to Choose References
So who makes for a good reference? Here are a few people you should consider for references:
- Family members with whom you do not live (parents, siblings, etc.).
- Business contacts – coworkers or, better still, work supervisors, with whom you are on good terms.
- Close friends with whom you regularly spend time.
The key is to choose people who will give you a positive reference – e.g., people who can vouch for you as a reliable and trustworthy person.
What to Include on Your Reference List
When compiling your list of references, make sure to include the following: full, legal names (no nicknames or abbreviations); home addresses; home phone or cell phone numbers; email addresses if they have them. The more contact information you can provide, the better your reference list will be. Also, make sure you ask for permission before you include someone on your reference list. The last thing you want is to have one of your references be surprised by a call from the lender.
Are References the Same as Co-Signers?
Many people get references and co-signers confused when applying for refinancing. References are not the same as co-signers. A reference is just someone who can verify that they know you and provide some information about you. Being a reference doesn’t carry any risk and the individual cannot be required to pay for your loan if you default on your payments. A co-signer, on the other hand, guarantees your loan. That means if you fail to make payments, the responsibility falls on the co-signer.
Other Documents That May be Required
Along with your list of references, you may be asked to bring along other documents to support your refinancing application. These documents may include:
- Your social security card.
- Your driver’s license.
- Copies of recent phone or utility bills that clearly show your name and current address.
- Pay stubs that show your income.
The Bottom Line
References help to prove to the lender that you are someone who can be trusted to honor your financial commitments. They also help to ensure that fraud is prevented where possible, that funds are released only when truly applicable, and that funds can be recovered in the event of an undisclosed change in location. If you are thinking of refinancing your student loan, book a consultation with ELFI. We will advise you of exactly what is required so that we can move forward with your loan application.
