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Understand your loan term refinancing options

Prodigy Finance - August 21, 2019

Understand your loan term refinancing options

When you refinance your student loan, one of the first (and most important) questions to answer is “how long”?

You might know “loan term” as loan duration, repayment cycle or repayment period. Whatever you call it, you probably didn’t have a choice in loan terms when you accepted your international student loan.

Now you do.

The loan term you choose could save you several thousands of dollars, reduce your monthly payment amount or even both. Here’s how to choose the best student loan refinancing duration for your situation. 

Student loan terms explained

There aren’t any universal loan repayment terms; standards vary by country.

In the US, for example, federally-subsidised student loans (the most commonly accepted form of student financing) are issued with a 10-year repayment term after grace periods are complete.

In India, typical student loan repayment terms last from 10 to 15 years, and this may or may not include the grace period. 

It’s important to note that grace period expectations also vary between countries.

In the US, a grace period is the same as a payment holiday; you’re not expected to make any repayments towards your loan during this time.

In India, you may need to make payments on the accrued interest during your grace period.

Although there are country-specific norms, most student loan terms last between 5 and 20 years, depending on several factors, including the amount you qualify to borrow and your pre-study salary.

The same loan terms apply to refinance - only you’re more likely to have a greater choice over the duration that works for you.

At the very least, now that you’ve graduated and accepted a job offer, you:

  • Know how much you can afford in monthly repayments, and
  • Qualify for an interest rate that reflects your current financial situation.

If I’m happy with my loan repayment duration, why would I refinance?

A key reason to refinance your international student loan is the lower interest rate you qualify for after graduating and accepting your new post-grad job. Generally speaking, the lower your interest rate, the lower the total cost of your loan.

For example, imagine you initially accepted a $100,000 international student loan with an interest rate of 8% + LIBOR¹ with a 180-month repayment term. The total cost of your loan would be $ 199,357, with an estimated monthly instalment of $1107.

Loan amount
Interest rate
Represent- ative APR

Loan term

Total loan cost

Est monthly repayment

$100,000
8% + LIBOR
10.96%

180 months

$ 199,357

$1107

Now that you’ve graduated and accepted a job, you’re likely to qualify for a lower interest rate, which will reduce the cost of your loan.

The impact of loan term on the total cost

Changing your loan term will also impact your total loan cost.

What happens when you choose a shorter loan duration?

If you choose a shorter loan term when refinancing your international student loan, the total cost of your loan will be less. But your monthly payments may be higher.

Using the same example as above, but refinancing your $100,000 loan over 120 months at a rate of 6% instead of 180 months at a rate of 8% will reduce the total cost of your loan to $149,077.

That’s a savings of $50,280.

But, the estimated monthly repayment cost becomes $1242, which is $135 more than the original monthly repayment amount.

If you’re earning more than you expected, or you’re willing to make additional sacrifices to get out of debt faster, this could be an option for you. 

Loan amount
Interest rate
Represent- ative APR

Loan term

Total loan cost

Est monthly repayment

$100,000
8% + LIBOR
10.96%

180 months

$ 199,357

$1107

$100,000
6% + LIBOR
8.80%

120 months

$ 149,077

$1242

What happens when you choose a longer loan duration?

If you choose a longer loan term, it’s likely to lower the interest rate of your original loan, and you’ll pay less monthly. However, you may increase the total cost of your loan.

Refinancing our example loan at an interest rate of 6% + LIBOR over 240 months rather than 180 months gives you a monthly repayment amount of $864. That’s a significant cash flow reduction of $243.

However, the total cost of your loan increases to $207,503.

If your monthly budget is tighter than expected, you might want to consider a longer loan term. You can always pay more towards your refinanced loan when you have the funds available. 

Loan amount
Interest rate
Represent- ative APR

Loan term

Total loan cost

Est monthly repayment

$100,000
8% + LIBOR
10.96%

180 months

$ 199,357

$1107

$100,000
6% + LIBOR
8.72%

120 months

$ 207,503

$864

Choose the best loan term when refinancing your student loans

Depending on the refinancing provider you choose, you may find loan terms that last anywhere between 60 months (5 years) and 240 months (20 years).

Depending on your school, programme and affordability, Prodigy Finance offers refinance repayment terms of:

  • 84 months (7 years)
  • 120 months (10 years)
  • 180 months (15 years)
  • 240 months (20 years)

And while many of our borrowers plan to pay more than the monthly minimums or make additional lump sum payments, they make the choice that’s closest to their future plans and current budgets.

In the past 6 months Prodigy Finance refinance borrowers chose:

  • 56% - 84 months
  • 20% - 120 months
  • 15% - 180 months
  • 9% - 240 months 

To choose the best duration when refinancing your student loans, you’ll need to consider:

1. Your priorities: Is it more important that you reduce your monthly repayment amount or that you pay less on your loan overall? Would you like to be debt-free sooner (perhaps while you’re still working in your country of study)? Answering these questions will guide you towards longer or shorter loan terms.

2. Current affordability: You don’t want to make the mistake of accepting monthly repayments that you have a difficult time making. What you can afford right now makes a big difference to the loan term you can take. Keep in mind that you can always pay more when you can afford it.

3. Extra payments: Whether you pay more than the minimum every month or you make occasional lump sum payments, you’ll save even more on the total cost of your loan.

When choosing your refinancing loan term, it’s essential to be realistic. Late payments or paying less than the minimum due can negatively impact your credit score and the likelihood that you’ll qualify for additional loan products later. 


Are you ready to refinance your international student loan?

Prodigy Finance offers refinancing on student loans for qualified graduates living and working in the United States or United Kingdom.

¹ Over the 3-month USD Libor base rate. This minimum margin rate is subject to change.All examples featured in this post exclude admin or other additional fees which may be added to the total cost of your loan. The minimum margin could be subject to change" and therefore the applicant must confirm if the rate is variable both in respect of the base rate and the margin.

Disclaimer: Prodigy Finance Ltd is authorised and regulated by the Financial Conduct Authority. 


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