What Are The 3 Aspects That One Should Consider Before Refinancing A Personal Lo
Posted by amrina alshaikh on January 1st, 2021
Were you aware that you can essentially take out a new personal loan to pay off an old personal loan that you may have?
Known as refinancing a loan, this is a financial move that enables a borrower to take out a new loan from the same lender or a different lender to pay off an old loan. The new loan often entails lower interest rates and better terms. Also, it can assist the borrower with an additional amount of loan amount.
There are a few points to remember before one decides to refinance their loan.
- How to opt for refinancing?
Ensure proper research into the various aspects of refinancing a personal loan so to protect yourself from any financial burdens.
- Figure out the amount you need - The borrower can either contact their financial organisation or log into their instant personal loan app to firstly figure out what is remaining amount to be paid off for the old loan. The next information is to understand whether there is a requirement for extra money for any financial needs or whether the new loan will be utilised simply to pay off the previous one.
- Check your credit score - The issue of a new loan is dependent on the credit score of the person. Credit bureaus or your bank can be contacted to obtain a credit report. The credit score will allow the borrower to determine which are the likely benefits and rates they can avail for the new personal loan.
- Research the market for the best terms and interest rates - Speak with your current lender and other lending organisations to understand market rates and eventually figure one out that will be most suited to your needs. The borrower can go through online sites and instant personal loan app to find out information.
- Once all factors are figured out, the borrower can apply for a new personal loan to refinance an old personal loan. For ease, setting up auto payments can help with making regular payment of EMI without fault.
- When to opt for refinancing?
Although refinancing may seem like an attractive financial option, here are a few pointers that will enable you to understand if refinancing will be the best move.
- If you have a variable interest rate on a personal loan, and it is leading to financial issues, refinancing with a new personal loan can help you switch to a fixed interest rate. A fixed EMI each month will help you plan your monthly finances better.
- If you are in need of a lower interest rate. Refinancing an old personal loan can help you opt for a loan with lower interest rates. This is beneficial if the value of the EMIs has become tougher for the borrower to pay each month due to, for example, a reduction in income.
- Contrary to the above point, a borrower can refinance an old personal loan with a loan that has a shorter term of repayment. If you are comfortable with higher EMIs, this option is suitable and can even reduce the overall interest charged.
- If the borrower has a high credit score and your credit records with the old personal loan have been stable.
- What are the disadvantages of refinancing?
Similar to any credit transaction, some cons also need to be considered.
- If you opt for a lower interest rate while refinancing, the overall interest charged on the new personal loan, which now has an extended repayment period, will be higher.
- Although a temporary impact, refinancing a personal loan can lower the credit scores of the borrower.
- Some lenders can charge extra processing fees or prepayment penalties while refinancing a personal loan.
It is always suggested to do all necessary research of all financing options to understand whether refinancing your old personal loan will be worth it for you. Refer to all available online and offline sources to figure out the best refinancing options.
