Refinancing
Replacing an existing loan with a new one, usually to get a lower interest rate, a lower payment or a different term.
When you refinance, the new loan pays off the old one. People refinance mortgages, car loans and student loans. A lower rate can cut interest, and a longer term can lower the payment, though a longer term can raise total interest.
Refinancing often has costs, like closing costs or fees. Compare those costs to the monthly savings to find your break-even point. Refinancing federal student loans into a private loan ends federal protections like income-driven repayment.
Example
If refinancing costs $4,000 and saves $200 a month, you break even after $4,000 ÷ $200 = 20 months.