Refinancing means that you take out a new loan to repay the previous debt. The reasons why we resort to this grip are many and complex. Here is a review of the most common cases, as well as all the tips you need to get the most out of it financially.
What is achieved when you refinance?
Of course, it is best to never have to resort to the refinancing of expensive debt. However, when the need arises, you can at least comfort yourself with the fact that the refinancing is a lot of positive.
- You probably get lower interest costs.
- You get fewer fees if you refinance more loans or credits.
- You avoid debt ending up in debt collection and payment remarks.
- You get a better overview of the economy.
- You are probably avoiding worries and stress.
What you need to refinance will affect the benefits. We’ll take a closer look at this below, with suggestions on how to proceed.
Suitable for larger consumer loans
It may be appropriate to refinance even for those who only have a single consumer loan. As a rule, finding a more affordable alternative is more than getting out of a debt trap. The factors that will affect most are what interest you receive on the new loan, what any establishment costs will be, and how long you have left on the repayment period. Basically, most loan customers should always look for cheaper solutions.
Get quotes for new consumer loans of the same size.
- Look for banks with no setup fee.
- If necessary, use a finance agent to get plenty of offers.
- Move the loan if the total cost is lower.
- Choose shorter or equal payback times, as long as you have enough revenue.
The refinancing of expensive debt can be very profitable if you keep the installment amount constant over time.
Therefore, you should collect more small loans
So-called small loans and micro loans are among the worst when we talk about the need for refinancing. The effective interest rates are often on a par with the credit cards, and in some cases higher. In addition, the borrower pays as many term fees as the number of loans. This fee is also consistently higher for small loans and micro loans, than is the case for larger consumer loans. The phrase “many streams small.” is very descriptive in this context.
- Collect small loans into a larger and more affordable consumer loan.
- Search at multiple banks and choose the cheapest option.
- Refinance the most expensive debt if you don’t get a large enough loan.
- Choose the shortest repayment time possible.
Delete credit card debt and cut interest rates
Figures from the State Institute for Consumer Research (SIFO) show that more than 300,000 people are struggling with credit card debt. These are also debts that are significantly more expensive than most other loan and credit products. The interest terms you get in your credit cards can come up to close to 35%, while the cheapest solutions are down to 15%. Credit debt refinancing almost always ends up in much lower costs.
Find a consumer loan with lower interest rates than for your credit debt.
Collect all debt into one loan.
Please note that if the credit is completely used up in a credit card, you can request that the debt be converted into a repayment loan. The terms you may then have, you should compare with the conditions you can get from other banks. If you can save money, move the debt.
What about small loan amounts
Strictly speaking, it is rare that it pays so much to refinance small loan amounts. For example, if you have a consumer loan of USD 10,000, or credit card debt on the equivalent, you should prioritize getting this off through your paycheck. With a little discipline, most people can do this in a month or two.
- Only move the loan if you are unable to pay down in the usual way.
- Only move the loan if you get better terms in a new loan.
- Remember to include establishment costs in the calculation.
- Don’t use credit cards to pay off small consumer loans.
For you with a mortgage, car, or similar
Mortgage secured loans are more comprehensive to get refinanced. This includes a new registration of the mortgage secured object. In addition, the establishment costs for the new loan can be several thousand USD.
As a rule, the purpose is also different. For example, we call it refinancing the mortgage when we move it to another bank, only to improve interest rates. Many also bake the car loan into the home loan, to cut interest costs.
In our context, however, there are other situations that may involve a mortgage.
To refinance consumer debt with collateral
Expensive debts from credit cards and consumer loans can be baked into a mortgage you already have. In that case, there must still be enough mortgage insurance on the property. That is, total debt when the refinanced amount is included cannot exceed 85% of the property’s sales value.
If you are considering this solution, please note the following:
Do not deposit small amounts into the mortgage.
End costs can be significant on debt you might be able to pay through your income, or through an unsecured loan with shorter down payment.
Pay the extra down on the mortgage if you can.
For example, if you invest USD 100,000, the interest rate differential is partially offset if the repayment period is considerably longer than you would have had for a corresponding unsecured loan.
A brief summary
The benefits of refinancing debt are as we see many. The savings are often in an order of magnitude that can change the life situation significantly, especially when the debt comes from credit cards and expensive small loans. In addition, such debt becomes even worse to deal with as we struggle to cope with each expense. If they end up in default, expensive debt collection fees come on top. At worst, we end up as debt victims.
Consider getting refinancing offers, especially if the installments are already difficult to manage. Also look for cheaper loan options, even if you have good finances and overview.
A good alternative when applying for debt refinancing is to use the lender Astro. This is a service that accepts your application and sends it to up to ten Norwegian banks. This way, you can be sure that you will end up with a good loan offer, as the bank must compete for you, and not the opposite.