Personal loans are getting more and more popular by the day. With so many financial institutions offering instant and on-the-day loans, it is easy to get caught up in debt. But living a life of debt is not something anyone would want for themselves.
Taking a loan is not the issue as there are so many reasons people tend to take one. You can read this article to learn the various things Norwegians spend personal loans on. But paying back might be an issue for some people.
While you may have taken the loan for a pressing reason, no lender will let you off the hook just because you had an urgent need. You will still have to pay back what you owe and there are different ways to go about this; refinancing is one of these ways. Therefore, in this read, we will be looking at the steps you need to take when refinancing your personal loan. We know that this topic may be new to you, so before we discuss the steps, we will first explain what refinancing is and how it works.
What Is Refinancing and How Does it Work?
Refinancing is a repayment option whereby a borrower takes out a new loan to pay off an existing one. This repayment option may seem redundant at a glance but when you take a deeper look, you get to understand why people opt for it. Typically, refinancing can be a great way to help you get a better repayment deal and get debt-free faster.
Refinancing is a quite easy process. You can get the new loan from a new lender, or you can get it from your current lender. The most important thing is getting better terms with it.
Once you get the funds from the new loan, you will then pay off your old debt. After which you will start paying off the new loan. This option is usually used to get a longer repayment period, reduced interest rate, reduced monthly payment, and so on. All in all, it is used to help the borrower save up money or get debt-free faster.
Steps to Take When Refinancing
Refinancing can be a very good financial option that can help you save money or pay off your debt faster. However, when doing this, you need to take the right steps to ensure the process is as smooth as possible. Luckily, we are here for you. Below, we will look at the steps you need to take to make this process as swift and cost-efficient as possible.
Evaluate Your Situation to Know If Refinancing Is the Right Step for You
Refinancing is a great financial choice. However, there are certain situations where it isn’t the best choice. So, before you decide to refinance, you need to evaluate your current situation and figure out whether this would be the best choice or not.
The first thing you need to know at this stage is that refinancing comes with certain fees. For example, your current lender may ask you to pay a prepayment fee. This is a penalty fee that some lenders charge when a borrower wants to pay back their debt completely before the loan’s expiration date.
Therefore, you need to find out all the fees attached to the new debt and be sure that you can afford it. It’ll also pay to calculate the new loan’s monthly payment and terms. You can visit here https://www.calculatorsoup.com/ to find a loan calculator you can use for this. If you can’t afford the various refinancing fees, then it won’t be wise to move ahead with the process.
Another situation where this won’t be the best choice is if you are almost done paying off your current debt. In this case, it won’t make sense to spend more money on refinancing when you can simply just pay off your current debt.
However, if you have a better credit score that can help you get a reduced interest rate, then you can opt for this option. Another time when this is a great choice is when you want to reduce the repayment duration. Perhaps, you are more financially stable than you were before, and you can now pay more on the monthly payment.
In this case, you can refinance and negotiate a shorter repayment duration with your new loan. This will help you become debt-free faster, but it will also increase your monthly payment. So, unless you are financially stable, you shouldn’t opt for this option because of this reason.
If you are also in a financial stitch and you can no longer afford your monthly payments, this option may be the best move for you. In this case, you can reduce your monthly payment, but it would also mean your repayment period will be longer. This means that you will be in debt for a longer period; it will also increase the amount you will generally spend on interest rates. So, unless it is completely necessary, do not opt for this option because of this reason.
Choose a Method
When it comes to refinancing, there are 2 common methods available to you. You can get another personal loan and use it to consolidate your debt as we have discussed so far. Or you can get a balance transfer card.
With the card, you get a credit line that you can use to pay back your debt and then pay the credit later. These cards often come with a fair interest rate. However, the credit limit on them is less than what you’d get with a personal loan. This is why most people tend to opt for personal loans instead of credit cards.
Shop Around and Compare Offers by Prequalifying
Once you are sure this is a good option for you, and you have also figured out the method you want to take, it’ll be time to get the best rate. The only way to do this is to shop around. Take your time to visit refinansiere website of different companies to compare their rates. Factors to consider as you shop around include repayment terms, credit limits, fees, and interest rates.
Once you have a list of potential lenders, evaluate their offers by prequalifying. Prequalifying is simply a process that allows you to check the terms of the loan, estimated value, and APR. Luckily, prequalifying requires only a simple credit check that does not affect the borrower’s credit score. So, you can use this to compare the offers of the different lenders you are considering.
Select a Lender Then Apply
After comparing the different offers you got, the next step would be to select a lender. The lender you go with should typically have the best offer that will help you meet your goal for refinancing. After choosing the lender, you will then apply for the loan. Make sure you follow all the instructions while doing this; do not make the mistake of applying for a loan you do not qualify for.
Applying will make the lender carry out a credit inquiry. This inquiry is often intense and will likely reduce your credit score. But this is often for a short time.
If your application gets approved, you may either get the funds transferred to you directly or the lender may pay off your debt directly. If you get the funds directly, ensure you pay off the original debt immediately to avoid any additional fees. After this, all you have to do is start paying off the new loan you got.
Conclusion
Refinancing is a great way to pay off your debt faster or even save up some money on interest. This article has discussed the steps for you to take to make this process as straightforward as possible. If you get confused at any point, you can easily ask your old lender or the current one for clarification to avoid mistakes and complications.
