Refinancing or Refinansiering can also be referred as a debt consolidation loan. It is taking out a new loan in order to pay off an already existing debt. You are then required to pay back the new loan as per the terms of agreement.
People opt for this because of various purposes including Refinansiering av forbruksgjeld and credit card. Many people prefer refinancing or Refinansiering because of the low fixed interest rates they get.
Refinancing or Refinansiering a consumer debt is taking a new personal loan to pay a pre-existing one. However, there are certain factors that one must consider before refinancing a consumer debt. These includes;
- Interest rates
The most common and important factor to consider before refinancing or Refinansiering is the interest rates. People opt for a refinance because it offers them better interest rates than the old loan.
Do your due diligence and calculate the difference in the interest rates. If they are the same, then there is no need of debt consolidation. However, if the new loan offers you a lower fixed interest, then grab the opportunity.
The slightest difference in interest rates can save you from spending thousands of dollars. In most cases, current interest rates are usually variable meaning they can reset any time depending on the index change.
New loans have fixed rates with a secure monthly payment period,
- Cost of refinancing
It is essential that people understand refinancing is not free. There are fees charged before you are allowed to continue with the process. Considering you are already in debt; you may still need extra money for you to get a debt consolidation loan.
Some of the fees charged application fees and discharge fees. Use an online loan calculator to calculate how much you will spend on the fees. Calculate the new loan that you are required to get including the fees charged.
It is wiser to engage with the lender and get an understanding of what each fees covers. Discuss on the terms of the agreement to ensure you are on board with everything.
- Credit rating
A debt consolidation loan is simply applying for credit. For an individual to have a successful application, they must have a good credit score. Your application might be canceled if your credit score and history is negative.
Any debt taken is always indicated on your credit history. Ensure that you always repay your loans on time in order to build a good score. Any delays and unpaid debts are also indicated and may have a negative impact on the credit score.
If your application is successful, boost your score by diversifying your credit mix. This is done by taking different types of loan. Lenders and credit bureaus are impressed by borrowers who can handle different types of loans.
Having a bad score negatively affects your option to refinance meaning that you might not be awarded the loan. On the other hand, a neglected refinance option negatively impacts on one’s credit score.
Ensure you first check if you are eligible for a refinance before applying to avoid any negative impacts. Read more here https://www.usatoday.com/story/sponsor-story/rocket-mortgage/2021/08/04/6-important-things-know-before-refinancing-home-loan/5489013001/
- Motive behind this option
What are the reasons why you need to refinance? This should be a question that you can answer with ease before any application is done. Having a clear motive is important as it gives you the drive to ensure the process is successful.
Is the refinance for consolidating consumer debts or other debts? Is it because you want a more flexible loan? Do you want a loan with a lower interest rate? Are you looking for an extended payment period?
These are some of the questions that answer your motives for refinancing. Explaining to your lender your reasons for refinancing may be helpful as they can decide to give you a better offer. However, this is not the case every time.
- Refinancing scams
Watch out for scammers and fraudsters in the market. Be wary when presented with a deal that sounds too good. Have a credible financial expert that you can approach at any time to discuss matters finance to avoid being scammed.
Equip yourself with adequate knowledge concerning loans and debt consolidation. Watch out for unsolicited offers that lure you into consolidating your debts into a mortgage. This is very dangerous because you might lose your home or other assets.
- Bank loan vs finance company
When opting for a refinance, most borrowers often go to another bank or financial corporation. The main reasons why people refinance is because of low interest rates and fixed monthly payments.
The interest rates in a finance company is often higher than that of a bank. It is therefore unwise to refinance a loan with a finance company because they do not have better offers. You can however do the reverse. Refinance a loan from a finance company using a bank loan.
That is a wiser option because the interest will be lower, fixed and a predictable payment plan. Paying back a refinance from a finance company is more costly than that from a bank.
- Loan term
Did you opt for refinancing because of the loan term? One might decide to clear an existing loan with a refinance because its payment period is long. Paying back a loan for a lengthy period of time means that the interest rate will be slightly higher.
An individual might opt for debt consolidation whose features is inclusive of a short loan term. You also save more money with a shorter loan term because interest will be paid for a few years. This should be a consideration in case you want a loan with a shorter term. Click here to read more.
The factors discussed above come in handy when in need of a refinance. Arm yourself with knowledge to avoid being scammed or getting into debts unknowingly. Have credible reasons why you need a refinance to avoid spending the loan on unnecessary things. This will keep you out of debt.
When applying for a loan, keep in mind some of the factors that a lender might consider before lending a borrower. It is helpful in ensuring you secure a loan.