While the process of applying to refinance your student loans isn't particularly time-consuming, you'd probably rather not spend the half hour collecting documents and filling out paperwork if you think your application will be denied.
One of the best ways to increase your chance of successfully refinancing your student loans is to apply with a cosigner.
In fact, some borrowers choose to use a cosigner whether they need to or not — simply because being able to spread the risk means lenders give borrowers with cosigners lower interest rates.
But how do you know if you need a cosigner for your refinancing application?
Just a few quick questions can help you understand your chances of getting approval without a cosigner.
1. Do you have a high credit score?
Your credit score is one of the most important pieces of your loan application. It’s a numerical representation of your credit history. A credit score above 690 generally indicates to a lender that you have a positive credit history and would be a good loan risk.
On the other hand, a low credit score suggests that you may have defaulted on loans or may be carrying too much debt.
2. Do you have a solid income?
A lender is taking a risk each time it provides a loan. The application helps them determine how high or low that risk may be. Evidence of a solid income provides lenders assurances that you have the financial means to make full and timely payments.
If you have a consistent income but are underemployed, your monthly paycheck may not be enough to convince a lender you could cover your monthly expenses.
3. Do you have a stable employment history?
When a lender reviews your refinancing application, they’re making a determination about whether you’ll be able to repay the loan—probably for years into the future. While we all know that the past doesn’t necessarily predict the future, lenders rely on past performance, like employment history and credit score, to decide whether you’re a reasonable bet.
If you've had recent periods of unemployment or a significant job change, a lender may be less likely to approve your application.
4. Have you consistently made student loan payments on time?
Most lenders will not refinance student loans that are currently in default. But even if your loans aren't in default now, a history of late payments may put you in the deny pile.
Your repayment history is one of the most straightforward indicators of your ability to make regular payments for the future of a new, refinanced loan.
5. Do you have a low debt-to-income ratio?
Your debt-to-income ratio is a number that lenders use to determine how much money you’ll have avaiable after you pay all your debts. If you have a high debt-to-income ratio, you may not have enough money each month to both pay your debts and pay for necessities, like rent and food.
Paying off credit cards is one of the best ways to lower your debt-to-income ratio.
What's the verdict?
If you answered "no" to even one of these, you likely need to use a cosigner if you want to refinance your student loans. While finding a cosigner can sometimes be a challenge, understanding the pros and cons of using a cosigner can help you address most concerns.
By using a cosigner, you may have the ability to reduce your monthly payments when you need it most. Learn how much you could save with student loan refinancing.