Circumstances do change. Sometimes you need to change a loan. Refinancing helps you find a new loan with better features.
Refinancing a loan simply means moving debt to a different lender.
How Does It Work?
- You already have an existing loan.
- You apply for a new loan with a new lender.
- The new loan pays off an existing loan.
- You now have to repay the new loan.
Refinance Your Student Loans
Why Do You Need to Refinance Your Loan?
Some people might not enjoy the whole lengthy process of refinancing. The process can be time consuming and expensive. But why would you need to refinance a loan? Consider these benefits;
- Save money; you can save money on interest costs. A new loan with a lower interest rate can save you money. A long term loan refinanced can result in significant savings.
- Improve cash flow; a new loan with lower payments leaves you with cash flow for other expenses. You are given more time to repay the loan.
- Shorten your loan term; a 30 year old mortgage loan may be refinanced into a 15 year old loan. Large payments help you get rid of the debt quickly.
- Consolidate debts; it makes sense to assemble all debts into one single loan. This is especially true if you find a lower interest.
- Change your loan type; it might make sense to change a fixed rate loan into a variable one. Rates might rise in future. A fixed rate loan would make sense.
- Pay off a loan that’s due; a loan payment date is due and you do not have the funds. Refinance a personal loan for more time to pay off the loan.
When Is The Best Time To Refinance Your Car Loan?
Car refinancing might be a good idea and could save you thousands of dollars. Unlike mortgage loan or credit card consolidation, car refinancing is easy. There is no appraisal needed.
If your current loan is in one of the situations, you might consider refinancing personal loan;
- The interest rates have dropped
- Your credit score has improved
- You didn’t get the best rate at time of purchase
- You are having a financial setback
- Your car lease is expiring and you want a brand new car
Use the calculator above and compare 1 lenders who can offer you an auto loan.
Disadvantages of Refinancing a Loan
There are two sides of a coin. It is wise to evaluate both the pros and cons before you refinance. Consider the transaction cost. Home loan cans cost you much more to refinance personal loan.
There are important features of a loan that might go away when you refinance. You may not enjoy flexible payment terms as the old loan.
What Does Not change?
- Debt; you will still need to pay the amount owed
- Security; if you used a collateral when applying, the property will still be at stake
- Payments; monthly payments are calculated by the loan balance, term an interest.