Refinancing talks about amending the terms associated with a loan or loans that a borrower has. It is often used as a tool to merge several small consumer loans into one. Therefore, rather than repaying several loans at the same, the borrower pays just one.
In essence, the borrower’s previous debts are revised and they get a new facility with new terms and conditions. These types of debts may be a mortgage, credit card debts, an auto loan, or any other consumer loan. Often, the new loan has more favorable terms and conditions both for the lender and the borrower. This makes it a worthwhile venture for both parties.
Typically, when a person seeks to refinance their debt obligations, they are seeking to change to a more favorable interest rate. This affects that payment plan and other conditions attached to their various debts.
A borrower can refinance as many loans as they have. They may take out a new loan to cover and finance these smaller debts. This is beneficial as you gain more insights into your finances and you can better handle things. You also are more organized as you only need to handle a monthly repayment against paying several debts with different deadlines.
Refinancing also tends to make more cash available to you that you can make use of as you deem fit. It differs from one creditor to another and the details will depend on the type of loans you want to convert. It is a way to make your finances and life simpler. You can learn more about it here.
When To Refinance
Usually, a borrower may choose to refinance when there are better interest rates from when they started their loans. That is, they desire more favorable repayment terms.
For example, student loans are a popular way for individuals to pay for their education. There are two main types of loans; federal and private. A private loan is a financing option offered by banks, credit unions, or lenders, such as Sallie Mae. If you have a loan from the trusted lender Sallie Mae, it is a good idea to refinance. Refinancing Sallie Mae private student loans can help reduce interest rates, lengthen the repayment terms, and lower monthly payments.
Small loans and credit card debts often come with high-interest rates and can be expensive. Paying these debts can be very difficult, so it’s a good idea to refinance for lower interest rates.
The average interest rate on credit card loans is around 25%, while a refinanced loan is approximately 10%. Over time, you will have paid less and saved more when you refinance. This means that you can become debt-free faster and better grasp your finances.
Benefits of Refinancing
A lot of the time, refinancing is about obtaining more favorable terms but not necessarily always. It can serve as a smart way to circumvent debt collection, finance another investment or reduce your worries. There are several benefits to doing this as you will find below.
Escaping Expensive Debts
Most of the time, expensive debts are the ones that are refinanced. The greatest culprits as mentioned earlier are small loans and credit card debts. The interest rates can sometimes be as high as 30% and they also come with high fees.
Interestingly so, a borrower is expected to settle these debts quickly, and sometimes can be a matter of a few months. These can put a strain on an individual’s finances and life. The interest rate may not look like much when put in isolation especially when it is settled on time.
However, the issue arises when the individual has several types of these loans and they are not able to pay the installments. Through refinansiering, the borrower can get better terms and escape all these.
An intentional and self-conscious consumer may also choose to refinance their loans even when they do not have any financial troubles. For them, they want better conditions that will save them money over time.
Much like a utility subscription, they move their debts to a lender that offers a less and more competitive interest rate. With this, they can cut their cost by paying fewer fees.
Paying Lower Installments May Be Beneficial
An important aspect of refinancing loans for most people is reducing their costs. However, some others chose to do so to lower the amount they pay monthly. This is especially beneficial for people who manage their living expenses monthly and cannot afford any excesses.
A refinance may be used to lower the monthly installments for people like this. Although the total repayment costs will be higher, they can get a longer repayment period.
It is Beneficial for Mental and Overall health
Refinancing expensive loans is psychologically beneficial. Paying expensive debts can be difficult and draining and may impact a person’s mental health. However, by getting a reduction in cost and having a much better grasp of their money, they feel much better.
They can afford things that hitherto they were not able before. They are also not constantly worried about meeting up with payment deadlines.
Applying For Refinance
You can apply for a refinance by approaching a bank or any other lender. This may be a lender where you have your previous loan or a new one. The lender will assess you and your financial situation. These include the loans you currently have and to which creditors.
If you qualify, you will be approved for refinancing. You may qualify for either an ordinary or flexible loan. An ordinary refinance means that the lender takes over your debts and often without a need for collateral. Flexible loans mean you get a loan account with a maximum limit on the amount you can spend.
You can use this based on your judgment. You may choose to use part of it to repay your debt and use the rest for something else. You may also choose to use all for the refinancing and payment of all your debts.
When applying for a refinance, it is more beneficial to apply to many lenders before choosing one. Different lenders have different terms and by applying to several, you can compare these terms and choose the most favorable one. The applications are non-binding and do not attract a fee.
Applying to various lenders, however, can be stressful and difficult. To make things easier, you can apply through an agent or online service. When you do so, you only have to put in one application through the agent. The agent will forward your application to the lenders on your behalf.
Within a few hours, you will receive your first offer and others after that. For each offer, you will see the conditions attached to them and these include how much interest you need to pay. You can then easily compare all these offers and choose one.
You have up to 30 days to decide if you are taking up an offer or not. When you have chosen an offer, you can approve the loan using your BankID. Before long, the money will be paid into your account.
Requirements For Refinancing
Please, bear in mind that before you can be approved for a refinance, there are certain requirements you must meet. First, you must have an income. This is typically at least NOK 120,000 although some lenders may consider borrowers who earn NOK 100,000.
Furthermore, you must be more than 18 years old. Most lenders however prefer that borrowers are over 23 years before they can get a loan or refinance. Additionally, the maximum period of repayment is 15 years.
Within this limit, you may choose how long you want to repay the loan. However, oftentimes, it is limited to the repayment period of your longest existing loan. You may also have to pay a monthly term fee as well as an establishment fee.
Refinancing your loans is best when you want more favorable conditions or if you are trying to lower your installment amount. It helps you to better manage your finances. You will also have access to more funds, repay your debts quicker and also live better.