Have you ever thought of how to save on the loans which you already have taken? If you are overwhelmed with the payment of too many loans then the next few minutes of reading this blog will show you the right path to reduce your financial burden and mental stress.
Once a loan is taken and one has already started the repayment process then the only way to save money on existing loans is Refinancing.
What is Refinancing?
Refinancing, also known as a balance transfer. The refinance of a loan is a process of transferring the outstanding principal amount to another bank. In this way, the rest of the repayment will go towards the new bank and the previous loan account will be closed forever. Many borrowers who felt that paying a larger or multiple EMIs is bringing more pressure both financially and physiologically, can opt for a refinance.
A refinance/balance transfer helps you to save much on your ongoing loans provided the borrower should know to select the best lender and deal for it.
Lowers the Interest RateWhile selecting a personal loan, Tennessee loans one has to go with the present interest rate. But after one or two years of servicing the loan one may find that the interest rate has come down but he/she is paying an interest which is higher than the present rate. In such a scenario, one can go for refinancing which will bring the interest down to the present rate. This will help a borrower to save much on interest payment.
Let’s understand this with an example: Naresh has 2 personal loans and 2 credit card bills to be paid. So, currently, he is paying 4 EMIs for different interest rates and on different due dates. To get rid of all these fusses, he can go for a refinance/balance transfer by taking a new loan at a lower interest rate and can continue with a single EMI. Doing this will reduce much of his financial worries.
Credit Score Jumps SkywardsA refinancing is very beneficial if you want to boost your credit score. The balance transfer makes a person prove the consciousness regarding his finances. Moreover, a refinance means the prepayment of the existing loan. So, it is both the ways the credit score is certain to improve.
Options to Choose between Longer or Shorter TenureThe dynamic economical condition of a person is quite natural. One may increase the income with the passed time while others may be burdened with more responsibilities. In both cases, the economic condition which a person had at the time of applying for a loan, and the economic condition after 3-4 years is not the same. In such cases, one may want to increase the EMI to become burden-free soon whereas others may want a smaller EMI which will be easy to his pocket. Both problems can be solved with a refinance. With a refinance one has the option once again to determine his EMI and tenure. So one can choose for any option according to their convenience.
The Convenience of A Top-Up LoanA refinance gives an option to take a top-up loan over the personal loan which is higher than how much one can get with the existing lender. However, both the lender’s will check FOIR while sanctioning a top-up loan, but if a borrower has a good repayment history then one can negotiate on it. A new lender will always try their best to provide the best services to the new customers. So there are chances of getting a top-up loan of a bigger amount.
A balance transfer can earn the maximum profit when an applicant knows how to manage personal loans well. How much benefit can be earned by the refinancing depends on these four factors.
- Total Cost
- Remaining Loan Tenure
- Outstanding Principal
- Time and Effort
So, before you go for a refinance it is highly advised to check these points to calculate the total benefit. If the benefit is not very big then it is better to be with your existing loans.