June 17, 2021
How loan refinancing facility saves money on an existing loan?
By : Ellie Brown
Borrowing a personal loan can help you spread your cost of purchase evenly. For instance, after you borrow your loan, you may find out about better loan rates.
There may be the availability of loans for people on benefits. In this case, you can always have the option of getting your loan refinanced.
To get your loan refinanced, you can carry out proper research and check the best option available for yourself. Gather all the information and then go ahead with the refinancing option.
To help you make an informed decision, the following are the key points of advantages and disadvantages of refinancing your loan and how you can get it done.
- The first step is to apply for a new loan
- The next step is to pay off your existing loan and avoid paying off any early repayment fees
- Continue with better interest rate and lower repayments
Refinancing a loan involves getting a better deal in the long run. Pay off your existing loan and borrow a new one that will replace your existing loan.
Normally, you apply for a new loan to get a better interest rate. This helps you in saving money and will also make you pay less in totality.
Going by this option makes the loan process affordable for you by reducing your monthly repayments provided. It should be done correctly.
Loan refinancing- Advantages
- You get a lower and better interest rate
- Another benefit is that it reduces the monthly payments
- It makes overall debt management better and effective
Money-saving is an important aspect of managing your finance. Opting for loan refinancing will make you save a significant amount of money by getting you a lower interest rate.
Along with a better interest rate, it benefits by managing your repayments in a better way.
If you are paying off your existing loan without any default, there would already be an increase in your credit score, giving accessibility to a better loan.
You can also replace a bad secured loan with a better-unsecured loan. An unsecured loan may involve lesser risk and is easier to manage.
Loan refinancing- Disadvantages
- There could be a higher cost involved due to early repayment fees
- To apply for a new loan, a new application is required for submission.
- If you do not check your eligibility for the new loan, you may be at risk of reducing your credit score.
Do not go for refinancing your loan without proper research. Ensure that the new loan is preferable and more beneficial than your excising one.
Contact few lenders and gain information about the fees involved in the new loan. Some lenders charge a very high fee that becomes costly on the long run. Hence, weigh the pros and cons of a new loan in comparison to your existing one.
Generally, if you shop around and do your bit of research on different loans available, you may find a better deal than your existing loan.
In the meanwhile, if your credit score has improved by paying off your existing loan, there are chances you may find a better deal than your original one.
The effect of refinancing on the credit score
The major effect of your new loan can be on your credit score. To get approval for a new loan, it is important to check your eligibility for it.
Your eligibility is an indication of whether you will be accepted for the loan or not. You can use any of the eligibility checkers available online.
Before applying, be careful about your credit score. You are likely to have a good credit score if you have paid your loan on time and have no other issues in your credit file.
Having a good credit score will make you eligible for a better range of loans.
How to get your loan refinanced?
If you want to get your loan refinanced, there are many ways that you can follow.
The main factor to consider before opting for a new loan is to check if it is preferable to your old loan and will reduce your cost of money in the near future.
- Improve your credit score – The most important is your credit score and take measures to improve your credit score. A better credit score will help you get better interest rates from the market.
- Loan comparison– Narrow down your search by comparing various loans available through an eligibility checker.
- Calculation of the costs involved– Check with the costs involved in your existing loan. If the cost involved is minimal then you can proceed with borrowing the new loan.
- Apply for a new loan– Once you have decided on which loan to borrow, start applying for a new loan.
- Pay off the existing loan– Once you are approved for the new loan, use that amount to pay off your old loan and continue with your new loan’s repayments.