Is It Time to Refinance Your Personal Loan

April 2, 2018 | Author: | Posted in Financial Advisor

A more common practice with home loans, refinancing can also be obtained on your personal loan plan. Refinancing means when you trade your debt obligation (here, existing personal loan) from one financing institution to another to obtain a different set of terms such as low interest rate and longer financing tenure. You can opt for refinancing for your personal loan when you think that your current loan is taking a toll on your pocket and you no longer can afford it.

Let us find out in details about when you should preferably opt for a refinancing plan on your existing personal loan:

When you think the interest rate is too high

Compared to other financing facilities, it is possible that the interest rate for your personal loan is higher. In this situation, continue paying instalments with such high interest rate is not always feasible, therefore, you can consider a refinancing scheme which offers you a lower interest rate. This way, you can also get a chance to settle your loan earlier than the estimated time. You can also switch from a fixed interest rate scheme to a variable interest rate plan or vice a versa while taking a refinancing loan.

Before opting for a refinancing scheme, make sure that you study all top banks’ available plans and choose the most benefitting one. You may also want to check out the early settlement charges for your existing loan scheme because, even though you can settle your loan earlier with the help of refinancing but if the settlement charges are too high, you may end up losing a lot of money too.

When you cannot afford your monthly instalments

Paying fixed monthly instalments for your loan can prove to be financially exhausting especially when you have loaned a big amount. Moreover, a downward slouch in your business or job can also make repayments a tough task. In such cases, refinancing will help you as it can offer a longer financing tenure, lesser interest rate, and consequently smaller and affordable monthly instalments.

When you need an emergency funding

Your existing loan is already taking off a handsome sum of money from your pockets every month. In this scenario, if you get into a situation when you need an emergency funding, gathering money can be difficult. A refinancing plan can help you sail through your financial crisis. Refinancing requires less documentation and the application process also takes a shorter time which means you can obtain cash money in a lesser period of time.

Here, make sure that you take a bigger loan this time which will cover the amount of funds that you need as well as the remaining amount of your old loan.

When you want to have a consolidated account

At times, it proves to be difficult to manage multiple loan accounts and credit card debts. In this situation, having one consolidated account for all these debts can solve many inconveniences in one go. Your refinancing plan can offer you lower interest rates in comparison to the other debts. At the same time, you can choose a longer tenure and enjoy the convenience of smaller monthly repayments under one loan scheme.

Things to remember:

  • A bank will access your credit score before granting you a refinancing plan. Hence, it is necessary to keep your credit score healthy.

  • You also need to consider the fees and charges associated with a refinancing scheme.

  • If you are taking a refinancing plan for early settlement of an existing loan, you should check for the early penalties associated with that loan scheme.

  • If you are under lock-in period for a loan, refinancing may not be fully feasible for you as there might be penalties associated with your existing loan due to the lock-in period clause of the bank.

  • Above all, make sure that you do not take multiple loans that you cannot afford to pay back as refinancing also comes with a maximum limit.

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I am able to use my knowledge of the financial world to create quite interesting topics that will help a lot of people to learn about financial terms like personal loans, credit cards, fixed deposits& etc.,

Author:

I am able to use my knowledge of the financial world to create quite interesting topics that will help a lot of people to learn about financial terms like personal loan, credit cards, fixed deposits & etc.,

This author has published 3 articles so far.

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