Refinancing Your Loan: When And How To Start The Process—A Quick Guide
There are certain factors you need to consider before you opt to refinance your loan.
Loans are a way to fulfil one’s dreams, be it buying a house or studying abroad. But loan repayment is not an easy task for any borrower. Repaying loans requires a mix of careful budgeting, monitoring your finances and looking for ways to keep up with the equated monthly instalments. This is where refinancing could be a good option.
Refinancing means taking a new loan to pay off existing dues. It is usually done to take advantage of lower interest rates. Refinancing can be done for both home loans and personal loans.
When To Refinance Loan
Before thinking of refinancing your loan, you should look at certain factors.
Low interest rates: If interest rates are high, you can end up with more interest on your debt. Refinancing when interest rates are low can help you achieve significant savings in repayments.
When debt can be reduced: It is advantageous to get a new loan only if refinancing can help make a substantial dent in your debt. Otherwise, the move might leave you worse off in the longer run.
Credit score has improved: If your credit score has improved in recent months, it can be beneficial for you to get a newer loan at more favourable terms.
When looking for longer tenure: Borrowers looking for longer tenures can use the option of refinancing their debt to ease their financial woes. They can avail longer tenures with their new loan and consolidate their dues into one larger debt, if need be.
How To Refinance Loan
In order to refinance your loan, you need to follow a fixed process. Here are the steps:
Step 1: Look at the terms of your debt and calculate how much you need to borrow. Look around for different lenders who are offering that amount with the maximum benefits for you.
Step 2: Discuss refinancing with your present lender in order to apprise them of the situation and see if they are offering comparable terms as other financial institutions. Consider if you will be charged any prepayment fees for early closure of the older loan.
Step 3: Check your credit score and different eligibility criteria of the lenders before making a decision. If your credit score is not up to the requirements detailed by your chosen lender, you may end up paying more even if you refinance your debt to get a lower interest rate.
Step 4: Apply for refinancing: Approach the lender, either online or offline, to apply for a new loan. Submit all the required paperwork to get your application approved.
