Everything changes in life, just like the financial situation, which can improve or worsen day by day. For this reason, bank analysts had to create convenient tools that can tame these dynamic changes in the life of a particular borrower. One of the solutions is a refinancing loan. Check what it is characterized by and who should decide on it.
Payday loans and loans are subject to different verification rules. Every financial market oriented person knows that it is easier to get a short-term loan than a loan. These types of financing also differ in repayment length. There is therefore no major need to renegotiate the terms of the contract for payday loans, which must be repaid in 15, 30 or 60 days. During this time, there will be rather no spectacular changes in the borrower’s life that could affect the need to restructure or refinance his commitment.
It is completely different with loans for high amounts and for many years. Mortgages bind people practically for the whole life, during which a lot can happen. For example, interest rates may change, which will affect the price of the loan. Another issue is the individual situation of the borrower, who after several years of obtaining the commitment may already be a much more attractive customer for the bank. When someone decides to take a loan at the beginning of their life path, they do not have very high earnings or well-established credit history. This changes, e.g. because of getting a better paid job. Then you can think about changing the loan repayment terms by refinancing.
What is a refinancing loan?
Refinancing a loan is simply transferring your liability from one bank to another. The new bank with which the loan agreement is signed repays the client’s receivables in the old bank. Thanks to this solution, the borrower can free himself from cooperation with a financial institution that did not fully meet his expectations. The refinancing loan allows you to change the repayment terms to those that will be much more attractive. In some cases, thanks to refinancing you can save up to several thousand dollars. The reason is trivial. Banks compete with each other, which is why they can offer new clients interesting solutions that effectively break cooperation with the old company. Credit refinancing allows, among other things:
- shortening or extending the loan period,
- change in installments,
- use of decreasing or increasing installments or balloon installment,
- resignation from additional products, such as for example insurance.
What is the difference between refinancing a loan and restructuring or consolidation?
Each borrower should operate the financial dictionary efficiently to be able to successfully find himself in all the complexities, and thus save a lot of funds. That is why it is worth remembering that refinancing a loan is something completely different than consolidation or restructuring.
- Loan consolidation is the concentration of many claims under one liability, such as loans and outstanding credit cards.
- The loan restructuring involves changing the terms of cooperation with the current bank by renegotiating interest rates or other parameters of the liability being repaid.
Refinancing loans are always taken from another bank. They also apply to similar types of obligations. Therefore, a car loan is refinanced by a car loan and a mortgage – by mortgage.
Mortgage refinancing is by far the most popular form of this type of financial solution. There are also cash loan and loan refinancing offers on the market. However, it is the mortgage loan that reduces the cost of your monthly obligations. Taking a mortgage for 30-40 years, a lot can happen in life – hence the need to refresh the terms of repayment over time. In the context of refinancing, it is worth knowing the factors that affect the price of a loan. Those are:
- APRC – Actual annual interest rate.
- WIBOR – current interest rate. It is on its basis that banks grant loans.
- Bank’s margin.
Therefore, before deciding to change the terms of repayment of a loan in another bank, it is worth taking a closer look at these three elements that dictate the amount of repayment costs. The most important issue to check is the bank’s margin. Lowering it allows for better credit terms. The client does not have any influence on the APRC and WIBOR – therefore, negotiations on margins are an effective way to reduce the commitment installments. A long analysis of individual bank offers will allow reliable selection and a new, attractive repayment schedule.
People who do not have too much time should remember that transferring a loan from one bank to another involves many formalities. You should complete a new application and wait for the new bank to check your credit history, earnings level or re-appraise the property by working with a good appraiser.
What are the costs of a refinancing loan?
A refinancing loan is often a very convenient solution. However, it should be remembered that it involves certain costs. Usually these are:
- fee for changing the mortgage in the land and mortgage register,
- the cost of faster repayment of the entire liability to the old bank,
- commission fees to be paid at the new bank that has agreed to cooperate in the form of loan refinancing,
- the cost of securing a new liability, which most often takes the form of insurance.
Only a closer look at all fees and subtracting them from the price of the refinancing loan will let you know its real cost. Some banks hedge against refinancing by including a section on the contract for a high fee for faster loan repayment. Also, a new bank may inflate the price of insurance or add to the service, e.g. a credit card with a high interest rate. Hence, initially a very attractive offer may turn out to be an expensive and not very favorable solution on closer examination. It makes little sense to decide on a refinancing loan when you go to zero or save very little. The amount of formalities to complete can also effectively discourage the client.
It is worth getting interested in refinancing when the loan was taken in times of high interest rates.
Where can I get a refinancing loan?
Most large banks that operate in our country offer refinancing loans.
The offer of the above banks includes such facilities as credit holidays or the opportunity to receive additional funds. Refinancing a loan is a very responsible decision. Therefore, before taking any steps, it is best to familiarize yourself with several bank offers and to conduct a long conversation with a consultant at the branch of a given financial company.
What to do if a refinancing loan is not possible for some reason?
If you are not satisfied with the service offered by the bank with which you currently cooperate, decide on a bold step, which is refinancing. Often, however, for reasons such as the average lending situation or unsatisfactory earnings, institutions refuse to grant a refinancing loan. In such a case, further cooperation with the current bank remains, with which it is worth starting talks regarding the restructuring of your liability. Credit restructuring is a solution for those who for some reason cannot afford refinancing.
A refinancing loan is an option for you if you like to observe the market situation and always want to choose the best, but also the cheapest offer. Transferring your loan to another bank is often the only way to lower your monthly installments and finally breathe a sigh of relief, enjoying a slightly thicker wallet.