Refinansiering – What To Know Before Refinancing Personal Loans

How to Refinance a Personal Loan? - The Pros and Cons

It would be great if we can take out personal loans without having financial issues while we are repaying these but due to the global economic crisis that happening today, there is no guarantee that our monthly income will be enough for our expenditures. You’ll notice that most of the prices of various products in the market right now increased but our paychecks are still the same which means that we may not be able to save some money since our expenses will also increase. If the status of the economy will remain in this state for the next two or three years, then we will be in trouble, especially when we are paying expensive debts.

This situation will lead a lot of individuals, groups, and businesses to apply for a refinance because they need to settle their obligations without delays to avoid paying late fees or hurting their credit scores. Some of these borrowers might even try to find groups that offer lending services to their members because this is a fast and easy way to produce funds – see online loans or Lån to learn more about group loans offered. These are types of debts offered to target consumers or entrepreneurs to provide additional funds for their purchases so that they can enhance their lifestyle.

Well, that would be good if we can find such lending services because the members of these groups help each other and have established relationships that’s why they trust each other. But if this one is not available, then we need to find alternatives or other options on how we can refinance our loans to have savings, budget for other expenditures, and financial support for certain projects. Now, if you are one of the borrowers with existing debts and trying to find affordable refinancing loans, then make sure to know what to do before sending your formal applications to reliable lending companies.

Deciding if refinancing is the right move 

Sometimes we make decisions without planning, setting goals, or asking an expert’s advice when it comes to borrowing funds from various local lending institutions so I guess we forgot that we have financial experts, too. There are times when we need to consult them since we are confused because unpaid debts are not the only things that we need to worry about. Keep in mind that to borrow funds means refinancing means a new obligation so this must be taken out seriously to avoid mistakes that can lead to more worries.

To find out if refinancing is the right thing to do, you have to determine how much you want to request and the costs it will take to process this. Look at your financial status and see how this can be improved or how a refi can help. Remember that the principal amount that you have to borrow must be greater than your outstanding balance because you have to close the old one and open a new account.

Because of this, you’ll get a new contract as well since interest rates and repayment terms will be changed. Don’t forget that the terms are quite competitive so you have to search and explore different offers based on your preferences.

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Checking your Credit Scores

Of course, we need to check our credit scores because some lenders have different standards when it comes to the ratings, especially if you are requesting a large sum – look at https://www.moneysupermarket.com/credit-monitor/ to try checking your ratings. You can always check your rating online and make sure to take note of this. Most lenders are requiring the borrowers to have at least 660 or higher, though some may consider if it is 580 and when lower than this, your application might be rejected.

If you have higher or excellent credit scores, then you’ll likely be approved for lower interest rates. However, when a borrower already knows that this is very low, then he should delay the refinance and improve his rating first. In this way, he can get better and more affordable deals because there is no sense of refinancing when you’ll not benefit from this.

Be reminded that hard inquiry or credit checking will be performed. When that happened, your ratings will temporarily get hurt so there would be a slight drop. But don’t worry because this will go up again as soon as you start repaying your new debt.

How your Loan will be refinanced

You also need to think about how to refi your existing debt. Since you have a personal loan, this will then be larger than the limit on your credit cards so debts are usually consolidated. Anyway, you will benefit from this because you are allowed to restructure or modify your repayment plan and it is better to have a fixed cost for better management.

If you are going to deal with balance transfers, you may enjoy the zero-interest deal on the 18 months introductory period which is usually offered through credit card companies. Repayments would be faster and without interest to pay so the monthly costs are lower. But after the promo, the outstanding balance will be charged with interest rate so if you earned more on the period of your loan, then it is better to increase your repayments.

Shop for Terms

It would be better if you are going to shop for various lenders with the best terms offered. Give yourself a chance to search so do not rush things even when this is for emergency purposes. By the way, if your credit score is high, you can easily find better terms.

You may start your exploration by discussing this with your current lender. You will be asking about your loan statement anyway so just try if he will allow you to refi with your preferred terms. But this does not mean that you are going to refinance with them because you are allowed to choose a different lending company so compare them and choose one that suits your needs.

Do not forget to take note of the interest rates that may range from 3.5 to 35 percent. And then, origination fees must not exceed 1 percent of your borrowed amount. If you will opt for credit cards, they will be collecting a 3 to 5 percent transfer fee.

Prequalify

This process is used to informally assess the borrower for the lending companies to find out your creditworthiness. They usually check your savings as well as your income. And then, a soft inquiry will be performed but this will not hurt the borrower’s credit score so to prequalify would be fine.

Through this process, you will have an idea of how much you will be repaying them every month. Just like how you use online calculators, you’ll be given an estimate or quote. When you prequalify, the lenders can see how much they will lend you and what repayment terms work for your case.

They are going to review your current debt and refinance proposal. From here, they can suggest if you should refinance, find alternatives, or improve your credit scores – read more for additional information.

Submit your Formal Application

After choosing a lender with the best deal, you may start sending your formal application with the attached documents that the creditor required. This time, they are going to conduct a hard inquiry or credit checking and this will affect your credit score. Once your request was granted, the lending company will send you a message or give you a call so you can wait for the funds to reflect on your bank account.

Settle your outstanding balance right away and close the current account. If you changed the creditor, then make sure to notify your previous lender about the transaction made to make sure that the old one will be closed. Do not forget to request a document to certify that the unpaid debt was already paid in full.