When to Refinance A Personal Loan
Are you cash-strapped and struggling to keep your head above the water? Are you financially pinched and battling against a ton of debts? Here’s the solution to your money woes — refinancing your personal loan to the rescue!
When you refinance a personal loan, you pay that old loan off with another loan. It’s basically like out with the old and in with the new. By preference, your new loan must have a lower rate. Because that’s the whole point of getting a new one. Basically, you remove an old loan and then get a new one.
This method can save you precious cash should you become eligible for a much lower rate on your new loan. When you’re in a tight money fix, it makes perfect sense to refinance your personal loan.
But oops. Hold your horses. Make sure refinancing is a better choice for you. Ask yourself the following questions before diving right into it :
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Has your credit become better?
If your credit is 720 and higher — that means you have excellent credit standing. If it’s between 690 to 719, you’re doing good. Chances are, if your credit score is ranging from good to excellent, you will receive lower rates on your personal loans. Another thing is if you have been consistently paying your previous loans then you will also get a lower rate on your new loan. If that’s the case, then refinancing is the way to go.
Do you need lower payments but longer time?
When you refinance your loan, it can make your repayment term longer and reduce your monthly instalment. That being so, your cash flow can get a pick-me-up and that is the entire sum of cash left after all your expenses are paid off.
If that happens, that means you can use that extra money to pay your other debts or begin a fund for an emergency. But bear in mind, a term that is longer means you need to pay more in interest — simply put, in the long run, you will pay more and pay longer.
Do you want to pay your loan quicker?
If that’s the case, it means the shorter term, yet higher monthly payments. If that fits right into your financial plan, then, by all means, refinance your loan. That will lower down your total interest and will make you pay off your credit faster. This kind of method works finest if your current loan has a long term for repayment. Then refinancing it makes sense.
Do you want to shift from varying rate to a fixed rate?
If your personal loan has a varied rate, it means your payments may increase based on the market rates. Then it’s a no brainer — refinancing your loan with variable interest to a fixed rate is definitely better. This strategy could very well afford you to stick to your budget and it could also bring about consistency on your monthly instalments.
Perhaps by now, you have decided to go for refinancing your personal loan. First of all, you need to pre qualify for a new personal loan. This indicates that you need to pre-qualify with several lenders and check how their offers on rates and terms are set side by side the rates and terms of your current loan.
Check out the fees that go with refinancing — this is the next thing to consider. Append the interest and charges of the new loan and then contrast these to your current loan. This will help you decide whether refinancing is a good idea in the long run.
Some financial institutions or lenders move the money to your bank account instead of paying off your previous loan. So you need to make sure that you pay your old loan off with that transferred money. And then make sure that the old loan is already shut and done.
Look into your account to make sure that there is no balance left on your old loan. This is crucial because if you miss that, you will incur additional fees. Almost all lending agencies allow the borrower to set up recurring payments from a checking out — this works well for you to ensure that you are making good in your monthly payments.
This can never be overemphasized enough — missing out on your monthly instalment means penalties and more charges. Remember the reason why you are refinancing your loan is that you want to start anew and be able to pay your debts. Certainly, you do not want to add more woes to your existing financial troubles.
Now that you’re given a fresh start, try to do better. Another thing you need to remember is you need to determine whether or not refinancing your personal loan will help you save more cash. Look into this factor well, you may use a loan calculator to make sure everything is put in order.
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