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Whether you’re shopping around for the best deal on a student loan, or you’ve graduated and you’re considering refinancing, you’ve probably heard of LendKey. Working to connect borrowers to small, community banks and credit unions, LendKey is one of the most popular ways to finance your education or refinance your old loans.

Consolidating Student Loans with LendKey: A Review

But what does it do, honestly, that a big bank doesn’t, and what should you be considering before refinancing your loans? We’ve taken a look at what makes LendKey great, what maybe doesn’t work so well, and the questions you should be asking yourself before consolidating your student loans.

1 – Why do you want to refinance?

It might sound simple; group all your loans together in one simple monthly payment, but it might not be that simple for everyone. For some people, they approach debt the Dave Ramsey way, which means paying off small debts and then applying those payments to larger debts, creating a snowball effect. The psychological impact that paying off a debt has is profound and can dramatically influence how you behave with money in the future.

With that said, consolidation offers benefits that paying off loans one-by-one does not. You can get a better interest rate and lower your monthly payments with the right consolidation loan.

How LendKey works with that is by networking with smaller banks that might be more likely to take on a small amount of student loans or a riskier credit rating. It appears that while LendKey offers refinancing for “lower” credit scores, the minimum is 660, which is still a decent credit rating in general, so many people might not qualify. Their target income is over $55,000 as well, so for someone fresh out of college, LendKey will not be as great an option for you though their minimum income for consideration is only $24,000. This means you might qualify but for a higher interest rate.

As far as refinancing, they’re great for borrowers with stable employment and a good credit score, but the benefit to someone with more debt, less income or a less-than-stellar credit rating is significantly less.

2 – Can you make the new payment?

While for most people the new payment of a consolidated loan will be less than the combined amount of their smaller loans (due to lower interest), if you’re consolidating quite a bit of money, your monthly payment may go up. This is often because the consolidating company will buy up the interest you owe and tack it onto your principal. You need to be able to pay this amount each month, and make room for the new interest rate and terms.

LendKey has a calculator that will show you your optimal payments each month, in addition to your new minimum payment. This lets you see how much you NEED to pay, and how much you SHOULD pay to get your loan paid off faster. This is a unique, very helpful service that can help with financial planning in the long run.

3 – Will you need more loans in the future?

If you’re not quite where you want to be financially, or you’re still in school or might go back, you should probably hold off on refinancing. Consolidation is a big change, in terms of your credit; while you’re closing out many small loans, you’re getting a new, very large, very young loan put on your credit. It’s best to only do that one time if possible, so if you think you’ll need more loans in the future, just wait.

With that said, LendKey both consolidates and offers loans to borrowers, so you can consolidate and as long as you’re in good standing, still potentially get a loan through them. This is a very unique scenario and one of the best product lines that LendKey has to offer. Qualification for a new student loan is based off the same criteria as consolidation, so if you qualify for one, there’s a good chance you’d qualify for the other.

4 – Are your loans primarily federal?

The fed offers loan consolidation that runs through a federally partnered bank and in most cases, your loan still falls under the purview of the federal government. This is critically important for a variety of reasons:

– Federal loans have far more protections for you as a borrower than private loans do, like income-based repayment, forebearance and hardship assistance
– Federal loans have forgiveness programs attached to them; for instance, if you make 25 years of payments and are still in debt, the fed will forgive your loans. Private banks do not have to do that. Additionally, there are federal forgiveness programs that work through government work at state agencies, federal agencies and state colleges that will forgive your loans after 10 years of on-time payments.

The fact is that if you refinance under a private lender, you lose all of those government protections and repayment plans, and losing them can cost you a lot in the long run, particularly if run into economic hardship. While LendKey offers competitive rates and options, it’s far better to leave your federal loans in federal hands unless you are extremely secure in your ability to pay back everything with no hiccups.

5 – Do you need a cosigner?

For LendKey in particular, you can get a refinance loan if you make $24,000 or more per year, but with a credit-worthy cosigner, that requirement is lessened to $12,000. With that said, however, just because you can doesn’t mean you should. A cosigner takes on the responsibility for the loan if you can’t make a payment, something most people don’t want to be burdened with. Additionally, if you’re not in a place to refinance on your own, will you be able to control the loans’ payments and successfully keep them going?

A cosigner is perfect for if you have a good job and you’re able to make your payments but your credit isn’t great yet. In this case, refinancing might make your monthly payments much lower and save you money on interest rates in the future. If you want or need a cosigner because you don’t meet the income threshold, however, it’s best to wait to consolidate.

LendKey for consolidation

As a consolidation agency, you could do worse than LendKey:

– Minimum credit score of 660 to apply is broad but it’s not a guaranteed approval, so it’s still somewhat prohibitive
– The minimum income of $24,000 is good and it opens up consolidation loans for more borrowers who have good credit
– You must have some manner of degree for LendKey to offer you aid, which is also prohibitive
– They will not lend in Maine, Nevada, North Dakota, Rhode Island or West Virginia, so if you live in one of those states, you’re stuck

Potentially big problems:

– Despite having a longer forbearance than most private lenders – 18 months – there’s no in-school deferment like most lenders. This means even if you’re in class part time, you’ll still need to pay on your loans.
– They will not give you a quote without a hard credit check, which can impact your overall credit score, especially if you have a relatively young credit history

Student loan refinancing as a whole

Refinancing is about getting the best possible interest rate and also to stop having to pay small amounts here and there, but you have to be ready to refinance. If your credit isn’t great and you don’t make that much money, the allure of a lower monthly payment (possibly) can be tempting but it can be damaging or impossible without the right credit or a cosigner. Furthermore, LendKey, though it works with small banks and credit unions, can be more restrictive on lending than larger banks.

If you’ve got a decent job, an established credit history and you’re paying too much in interest, a consolidation loan might be best for you. It can lower payments, reduce your interest and expenses over time, and closing out lots of smaller loans can be good for your credit, as they count as “paid off”.

Ultimately it’s up to you – if you don’t mind a hard credit hit, you’ve got good credit and you make decent money, LendKey might be a perfect way to consolidate your student loan debt and get a better rate.

Have you ever used LendKey? What did you think? Let us know in the comments!

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