Personal loan refinancing is an option that lets you change the terms of your existing loan by getting a new one that potentially has better rates or a revised payment schedule. There are times when this is a good option, and then there are also times when you would be making a mistake if you decided to refinance. Contrary to what some people may think, this is not always the best solution, and you shouldn’t use it if you aren’t completely certain that it’s right for you and that you’re doing it at the right time.
So, if you’re planning on doing this, you need to know exactly when to søke for refinansiering, i.e. when to apply for refinancing your personal loan. Understanding when you should do this will also lead you towards figuring out when it might not be the very best move. This is why I’ve decided to present you with some of the situations in which applying for a refinansiering solution is right for you. That way, you’ll know exactly if the time is appropriate for you to do it now, or if you should perhaps give up on the idea.
There are two different interest rates types to consider when taking out a loan. One is fixed, meaning that it will not change during the course of your loan, and you’ll essentially be paying one and the same monthly amount until the end of the repayment schedule. The other one is variable, which is subject to certain changes that depend on the changes on the market. The variable ones tend to be lower than the fixed ones initially, but the bad thing about them is that they can change when you least expect them, thus costing you more.
If you’re seeing an upwards trend with the variable interest rate that you’ve previously agreed on, i.e. if you’re noticing that it is increasing, thus increasing the monthly amounts you’re paying, it could be a good idea for you to switch to a fixed one. You can do this through refinancing, and if you do it, you’ll enjoy the security of always knowing the prices amount you’ll be paying to the lender one month after another, instead of having that amount change frequently. People always refinance to switch to a fixed rate when they notice that the variable one has started increasing and when there are predictions that the trend will continue.
When you were getting your personal loan in the past, you have had a specific credit score, and the lender has decided, based mostly on that score, which interest rates to offer you. If the score wasn’t that great, then you’ve had to agree to higher interest rates because you haven’t been able to get a better deal. At that point in time, this didn’t only seem as the best option, but it was probably the only one for you, and since you needed the money you’ve applied for, giving up on the whole borrowing process wasn’t a solution. Things, however, do change.
And so, your credit score might have changed. If it has significantly improved from the last time, i.e. from the time you got your first loan, you could be qualified for better interest rates, and taking advantage of such an opportunity is definitely a great financial move. By getting a lower rate after refinansiering, you’ll essentially be paying less interest overall, which is quite favorable. So, if you’ve worked on improving your credit score and if you’ve succeeded in it, perhaps refi should be your next step.
Just like your credit score, and the market situation for that matter, can change, so can your income. If you’ve been building your career and working hard towards increasing your income, and if that has finally happened, then you could benefit from refinancing your old personal loan. How so? Well, by having a better income, you may be able to afford a higher monthly payment, and if you’re not sure why that is a good thing, let me now explain it.
Higher monthly payments may seem like something unfavorable, but they definitely aren’t, because they lead to repaying the entire loan off much faster. And, why is repaying the loan off faster a good thing? Because you’ll save on interest. You see, your interest rate and your repayment period play the crucial roles in how much interest you will pay overall, so if you can shorten the repayment period, you’ll automatically save money on interest, which is definitely something you want. If you’re lucky enough to have your income increased and to have your credit score improved at the same time, then you’ll save even more through refinancing, because you’ll not only shorten the repayment period, but also get better interest rates, as explained above.
We’re all striving to have our income increased, but things don’t always go the way we want them. What happens if you lose your job or if your income has decreased for one reason or another? You’ll still be obligated to pay the same monthly installment to your lender, and that can be a huge burden after a decrease in your income. That is, of course, unless you do something to lift that burden and get a lower monthly installment, one that will work best for your existing income after the decrease that you’ve experienced. Guess how you can do that?
Through refinancing, of course. If this is the situation you are in, you’ll be looking to lower the monthly payments by refinansiering, and you’ll get to do that by extending the actual repayment period. Changing the repayment schedule will reduce your stress, because you’ll get a new loan, under new terms, and those new terms will work better for your current situation, meaning that you’ll be paying a lower monthly installment, which won’t be that huge of a burden as the previous one. This is one of the main reasons why people refinance, apart from wanting to get better rates or get out of debt sooner. So, if you’ve experienced an income decrease, refi could save you from financial struggles and crises.
Some loans are designed in a way to have you make a much larger payment than the one you’ve been paying monthly at the end of the whole repayment term. If you’ve agreed on a loan that works this way, it means that the lender has allowed you to pay smaller amounts month after month, only to be required to pay quite a larger lump sum at the end of the repayment period, and that lump sum will actually be the outstanding principle, given that the interest has been repaid previously. If you’re not ready for a balloon payment, and you’d like to avoid it, you can do so by refinancing in advance and going for a loan type that doesn’t involve such a requirement.
All loans come with certain fees, and so do these that you’ll use for refinancing. You should know ahead of time which kinds of fees to expect, so as not to find yourself struggling with paying them once you start the actual refi procedure. Of course, knowing the fees in advance will also help you determine if refinancing is a good move at a specific time or if you should rather avoid it.
The rule here is for you not to go into any refinansiering processes unless you’re absolutely sure that you can afford those fees. Sure, refi can lead to great improvements in your loan terms, but if you can’t afford the fees that go with it, you’ll wind up in quite a struggle. Get familiar with those fees and perhaps take time to save some money, so that you can afford them when you finally decide to refinance.
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