The term “refinancing”, or “refinancing”, means the combination of several loans into one. This service greatly facilitates the everyday life of many borrowers, but at the same time, it is not suitable for everyone. In order to use refinancing in the most profitable way for you, it is important to understand how it works and in which cases it is profitable and in which this service cannot be used at all. Therefore, in this article we will answer all the above questions, as well as give tips that will help to reasonably and profitably combine loans.
What is refinancing?
The use of refinancing, or refinancing, provides borrowers with the opportunity to combine several smaller loans into one with more favorable interest rates and a repayment term, and thus make only one payment. In fact, this is the conclusion of a new loan agreement in order to immediately repay existing debt obligations, and then return them in a more convenient and profitable way. Thus, it is possible both to reduce the volume of your total debt obligations and to repay them faster using a more favorable repayment schedule. It is also important to mention that credit consolidation is possible for very different types of loan obligations – from consumer and quick loans to car loans and leasing payments. However, lenders can determine in different ways how many small loans can be combined into one.
In recent years, lenders have begun to expand their range of services more and more, actively offering the opportunity to combine loans. The reason for this is the high demand from customers who are interested in such a service. It is easy to understand the interest of clients, because such a service can significantly facilitate the everyday life of borrowers.
When can refinancing be used?
There are two main reasons why borrowers resort to refinancing, namely:
• To make loan payments more convenient
Many loan payments that need to be done on a monthly basis can bring chaos to the everyday life of any person. In addition, one of them is easy to forget, which can cause serious problems in the future. By combining loans into one, you will solve this problem, since in the future only one payment will be required per month. At the same time, it facilitates the planning of finances, making monthly calculation of expenses easier and more convenient.
• To get a better interest rate and terms
Often, borrowers prefer to refinance their loan obligations simply because they noticed a favorable offer from another lender. After all, why not reduce your monthly payment or total loan repayable amount, if there is such an opportunity? In addition, this service is very beneficial in cases when several loans are returned at the same time. Even if each individually issued at a low interest rate, most likely, when added, the total interest payment will no longer seem so profitable. Therefore, in this case, it is worth considering the possibility of refinancing – after all, when concluding a refinancing agreement, interest will have to be paid for only one amount.
Another option where credit pooling can help is when there are problems with paying off existing debt. Undoubtedly, this service will not solve any situation with a wave of a magic wand, but it often allows you to reduce the monthly payment, making it easier to repay loans.
In which cases is it not worth using refinancing?
Like any other way of borrowing money, refinancing must be used responsibly. Therefore, after refinancing existing debt obligations, it is not recommended to continue to burden yourself with new ones. Instead, evaluate your financial habits to understand why you constantly need loans, and learn how to plan your spending. In addition, refinancing will not always help in situations where there are difficulties in repaying previously issued loans, since this loan will also have to be repaid. Therefore, before sending an application, evaluate your financial capabilities to make sure that you can do it.
How to apply for refinancing and what should be taken into account before this?
Refinancing is already included in the range of services of almost all of the largest lenders, so if you want to use it, first of all choose the lender from whom you want to do this. Of course, this is not worth doing without a proper assessment, because each proposal is different from the others. Therefore, it is useful to know what you need to pay attention to before applying.
It is quite clear that we need to start by studying the proposed interest rates on loans – how much the rate is favorable compared to existing debt obligations and offers of other lenders, as well as whether it is fixed – otherwise there is a possibility that the initial interest rate in the period repayment of the loan may suddenly increase. It is also worth paying attention to the annual interest rate, which shows what are the total costs of the loan, including not only interest, but also the commission fee and all other related payments. This allows you to more accurately compare the offers of lenders, since it is possible that a lender offers a higher interest rate, but a lower commission and vice versa.
Another aspect of refinancing that you need to pay attention to is the additional services offered by lenders that can save you money or facilitate loan repayments. These include various bonuses and special offers, credit vacations and credit payment insurance, which allows customers to protect themselves in cases where due to unforeseen circumstances it is impossible to pay a loan.
When, after evaluating refinancing proposals, you have chosen the most profitable for yourself, the next step is to fill out an application. Most often, this is quite simple and you don’t even need to go to the lender’s service center, as in most cases the application can be quickly and conveniently filled out on the Internet. In addition, there is no need to worry if there is not a single lender’s branch near you, since the remote conclusion of credit agreements is an integral part of this convenient and modern service.