Freedom, flexibility, and control are some of the biggest reasons people to choose to work for themselves. But if you’re self-employed, how does it affect approval if you want to refinance your student loans? Good question. You can do it, but it’s not always easy.
One of the hardest things to get used to when you work for yourself is fluctuating income. It’s the perfect time to reduce your student loan payments or pay off your debt more quickly by refinancing. The problem is that it’s not always easy to find a lender who works with self-employed individuals. That’s why short-term loans are so common with entrepreneurs.
Understand the Process
Be sure you understand your loan situation. Refinancing may or may not be a good idea. Federal student loans have some unique benefits attached, like special income-driven repayment plans, so you could lose out on those by refinancing with a private lender. You should also know that many don’t work with self-employed clients.
Do Your Research
Go online and research which vendors have the flexibility to work with people who are self-employed. Realize that you may be viewed as higher-risk and face higher interest rates. So having strong credit history becomes especially important. This can be difficult for entrepreneurs who have taken on a lot debt to start their businesses, but it demonstrates much lower risk for the lender.
Since you won’t have pay stubs to show as proof of income, lenders will ask you to verify your earnings with copies of your tax returns or bank statements. Be ready to show that information. If you’re not able to qualify for refinancing, there are other ways to improve your chances of getting approved:
Have someone co-sign. Remember that person will be on the hook if you can’t make payments, so think this option through.
Work on improving your credit score. Making payments on time and paying down your debt are good ways to do this.
Boost your income. Whether it’s through a part-time job or temporary gigs, if you can show extra income on your application, it will be a big help.
Yes! You can refinance student loans when you’re self-employed. It’s just going to take a little more legwork. Understand your current situation, research refinancing options and lenders, and gather all the information you’re going to need to show with your application.