If you have taken out a loan for a home, car or for personal reasons, and you are having difficulty making the monthly payments, refinancing can be the right option to get you back on track. Refinancing allows you to use money from a new loan to pay off your old loan, allowing you to save money on interest as a result.
To get a new loan, you will need to apply. In most cases, if you have fairly good credit and collateral, you will be approved. The bank or loan service you choose will make a payment to your old loan corporation, closing the account so that it is paid in full. You would then be in an agreement to pay off the new loan at the new interest rate.
Most loan services will have a price to pay for refinancing. This amount varies depending on variables with your existing account, the amount you are asking to be loaned, and the length of the loan. This payment will need to be paid upfront before the loan will be issued.
To refinance car loan or home loan money, you may be able to extend the term of the loan at a lesser rate. This could be beneficial if you need to free up money for other bills or if you want to pay less for the loan overall.
In the long run, refinancing can be extremely beneficial. To determine if it is right for you, you will need to calculate some numbers to figure out if there will be savings. Take the penalty amount and add it to the new monthly payment amount. If this number works out to be less than the amount of the total number of payments at the rate you are paying currently, taking the loan will be in your best interest. You may also end up having more time to pay the loan if you are having difficulty doing it currently. This however would extend the amount you pay for the loan, but it is an option if you are having trouble making payments.
Refinancing can help your credit overall by freeing up money to pay back other loans or bills that you were not able to take care of when you had higher payments. In some instances, you can have a short break from paying your loan while you wait for your new loan to take effect. This will give you the freedom to use money for other bills in the interim, as well.
When you refinance, make sure to ask the lender for a specific payment date that works around your other bills so you will be sure to be able to make your payments on time. If your current loan doesn’t work with the rest of your bills, taking out a new loan is the best time to ask for a change in date.
Having a fixed rate loan gives you the peace of mind that you will be able to make the payments on time, every time. You will know up front how much the loan will cost and you will have a date to pay it by, making it easier to schedule other payments around your loan.
Some banks will offer loan discounted rates if you are an existing customer. This is beneficial for people who have checking or savings accounts within that bank, making it desirable to get a loan at a lower rate. Check around with several lenders first, however, as the rates will fluctuate greatly between different businesses. You may end up getting a better rate somewhere else, so checking thoroughly is advised.