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Many of us end up taking out a personal loan at some point in our lives. It is often very tempting to do so when faced with the need to make a large payment.
Personal loans have their place, and can bring benefits, when used carefully and used with care.
Your ability to repay the loan should always be the priority when you approach the lender, because defaulting on your loan will bring a lot of grief in the future and negatively impact your ability to get credit in the future.
As always, you should do your research before taking out any loan. Sites like reviewsbird.co.uk can be a help in narrowing down your decision so make use of them.
What Is Refinancing?
Refinancing is the process by which a loan is paid off, usually with another loan that is taken out.
The second loan is taken because the terms of repayment are more favourable.
Those terms may involve better interest rates or a change in the length of the term of the repayment.
There may be other factors that affect the refinancing decision.
It is important to remember that refinancing a loan does not make the loan go away. The debt is simply moved from one lender to another, and care should be taken to make sure that all of the terms of the new loan are understood in full.
How To Refinance
First of all, you will have to calculate the total cost of the refinancing process.
It won’t come without some cost. Usually, there will be a fee for early repayment of the existing loan. In addition, depending on the type and size of the loan, there may also be setup charges associated with the new lender.
Once these charges are taken into account, you can begin to work out how they are offset against the conditions of the new loan.
Do your sums careful in order to make sure that you are actually better off refinancing.
Once the costs associated with ending the old loan and beginning the new one are taken into account, you may find that refinancing is not a viable alternative.
Benefits To Refinancing
The obvious benefit to refinancing is that you can switch to a loan that has preferable repayment conditions.
These may include:
Your new monthly repayments may be lower with the new loan. This can be due to several factors. Interest rates with the new loan may be lower, reducing your overall debt. Alternatively, the loan term may be increased. Be careful here, as an increased loan term, even with lower interest may mean you end up paying more.
Simplifying Debt: If you have many loans or debts, then consolidating payments into one loan can make managing the debt easier. At the same time you may well be able to move some of the debts to more favourable terms.