Refinancing helps the borrower reduce the financial burden and get better conditions for paying debt. Knowing how to properly refinance a loan, you can avoid overpayments and save. How to choose a bank for this, and what to look for – in our article.
What is refinancing?
Refinancing is a refinancing, that is, obtaining a new loan to repay the old one. It is important that the terms of the new debt obligation are more beneficial. Thanks to this, you can:
- Reduce interest rate.
- Reduce monthly payment and change loan term.
- To simplify the calculation of several debts in different banks by combining them into one.
- Revise loan currency.
From a legal point of view, refinancing is a target loan, that is, the contract should indicate that the money will go to pay off the existing debt. Almost the same requirements are imposed on the borrower as with the usual design. It is necessary to confirm the ability to work, the availability of a source of income, place of work, leave several contact phones, provide identification documents.
The refinancing bank also checks the credit history. He will not contact unreliable customers who delay payment and do not comply with contract requirements. This is a tool with which a stable payer switches to the best conditions, and not a way to evade obligations.
What is the difference between refinancing and restructuring
Restructuring – review of the current debt position. It can only be done at the bank where you took the loan. It exists in order to reduce the credit burden if it is difficult for you to repay borrowed funds..
Refinancing is a way to save. Replacing an old loan with a new loan at any other bank, including the current one. But the current bank will not always be profitable to revise the terms of the loan for more loyal ones. Therefore, he may refuse.
In which case you need to refinance
1. Interest rate reduction
Refinancing becomes relevant when market rates decrease credit rates. For example, a family received a mortgage in 2005 at 14-15% per annum. By 2007, market rates dropped to 12-13%. In order not to pay the extra interest, she studied refinancing offers and renegotiated the contract with another bank. This has helped lower monthly payments and the total final cost of a mortgage loan..
Source: lifehacker.ru
2. Consolidation of loans into one
You can refinance several loans. They are combined into one, make a common payment and one bet. So, you will pay only once for one loan.
3. Currency change
Due to rising currencies, dollar and euro loans have become an overwhelming burden. Thanks to refinancing, you can change the interest rate and make debt ruble.
4. Reduced monthly payment
Not the best option. Reducing the minimum monthly payment, you increase the term and as a result give the bank more interest, that is, overpay in the end. This makes sense when it becomes difficult for you to allocate a minimum set amount of funds for a loan per month..
Banks provide refinancing services for the following types of loans:
- Mortgage
- Consumer loans
- Credit cards
- Car loans
- Overdraft debts on debit cards
In each case, the bank individually decides whether it is ready to refinance the payer’s debt obligations or not. Some work only with consumer loans, others do not engage in foreign currency debt.
Cons Refinancing
- Unfavorable conditions that initially did not seem to be the main disadvantage. With refinancing, the loan term may increase. Therefore, even a lower interest rate on the “long distance” will make a new loan more expensive. Pay attention to this. Your task is to keep the deadline, but reduce the size of the payment and bid.
- Additional expenses for early repayment of the current loan (penalty), commission for transferring money from one bank to another, commission for the refinancing procedure are possible.
- It is necessary to go through bureaucratic circles of collecting documents and confirming solvency again.
How to interact with the bank
1. Check with the current lender if he is ready to change the terms of the contract. It may not be beneficial for the bank to let the client go, so he will make concessions.
2. If the current lender is not ready to show loyalty, study other offers in the refinancing market. It is important to understand the tariffs, the required documents, limiting conditions, the reliability of the new bank.
3. Check the possibility of early repayment. It may turn out that under the terms of the contract with the current borrower it is impossible to repay the debt in advance. The option of getting rid of a loan ahead of schedule is also important for refinancing. Specify conditions and algorithm for early return.
4. At the last stage, contact the refinancing bank. Make an application and contract. Typically, the bank itself solves the organizational issues and sends the necessary amount to the previous creditor.
5. Carefully check the section of the contract that relates to the size of commissions and the conditions for calculating fines..
How to choose a bank for refinancing
In order to get good conditions, you need to familiarize yourself with the offers of many banks, paying attention to several parameters:
- Interest rate. Look for a lower rate than an existing loan.
- Amount and term. Most banks are ready to refinance for a period of 5-7 years and at least 30-50 thousand rubles, but there are options for 10-15 years. The loan must be “older” than six months and not end in the next 2-3 months.
- Package of documents. In some cases, only a passport of the Russian Federation is enough, in other banks they require proof of income and additional documents (work book, SNILS, military ID, documents on a refinanced loan).
- Requirements for the borrower. There are restrictions on the age and credit experience of the client.
In order not to waste time browsing sites, making calls and comparing all the data yourself, use online selection of refinancing from the service Compare. It shows current offers for a specific city and region. The options are filtered by the amount, term, necessary documents, age requirements and other parameters. The registration numbers of organizations in the Central Bank are also indicated and there are buttons for applying.
How to calculate whether refinancing a loan is profitable
To understand whether a new loan will really help improve the financial situation, calculate how much it will cost. Use credit calculator.
For example, you took a loan of 100,000 rubles. at 20% per annum for three years. During this time, you must give your bank 133,780 rubles.
First loan calculation
A year later, you decided to refinance. 12 payments have already been made; you transferred 44 596.32 rubles to the bank. Balance 70 536.96 rub.
Loan repayment balance after 12 months
Another bank offers you to refinance the loan balance for two years at 18%. Enter the data into the calculator again. The monthly payment will decrease to 3,521.49 rubles. and in two years you will give 84 513.88 rubles.
Calculation of a new loan
Bottom line: for the year you paid one bank 44,496.32 rubles. plus pay 84 513.88 rub. to a new bank. It turns out that the total amount will be 129 110.2 rubles. If you do not refinance the loan, then you will give 133,780.28 rubles to the first bank. Thus, the benefit will be 4 670.08 rubles.
You will find out the exact calculations only in the department of the financial organization. Here is an example and the principle of refinancing. Let us remind you once again that you should pay attention to all commissions, since due to them the benefit of replacing one loan with another decreases and may not make sense at all.
Refinancing is available even outside of Russia
Financial difficulties for those who are on the territory of Ukraine is no longer a problem. If the borrower has a delay in one of the loans, he can use the services of online services, paying off his debts. Credit catalog “credit-online” and other companies in the loan refinancing market operate around the clock, and the choice of offers is not worse than Russian.
There is no doubt that banks can help cover arrears on another loan, but usually the requirements are high – confirmation of the application in 70% of cases has a negative answer.
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I’m curious to know the strategies and steps involved in refinancing a loan to make debt more profitable. How can one negotiate better interest rates or terms? Are there any specific financial institutions or services that specialize in this? Any advice or success stories would be greatly appreciated!