What is credit refinancing, or how to minimize debts
The term "refinancing" is formed from two words: Latin Re – "Repeat", and financing, that is, paid (loans) or gratuitous (for example, subsidies). In the context of consumer lending
In other words, this is a new loan for repayment of the old. (Refinancing is often called – Removing.) In the legal nature, refinancing is a targeted loan, since the contract states that the money allocated by the Bank goes to repay the existing debt in another credit institution.
In which cases are resorted to the refinancing of the loan? Typical situation – change of market conditions and reduced loan rates. For example, you took a mortgage in 2005. The interest rate was 20%. You paid for almost 10 years and suddenly learned that in another bank annual bank only 15%. And so how to pay you for another ten years, you go to this another Bank and renew the mortgage agreement. As a result, you can significantly reduce monthly payments.
Who and how can refinancing?
When refinancing to the borrower, the same requirements are put forward as when designing a regular loan. That is, it should be a able-bodied citizen who has a certain experience and income level, with a positive credit history. On these factors, the client’s solvency is estimated.
So, in the dedication, most likely, will refuse an inaccurate payer, allowing the delay in the current loan.
Consumer loan refinancing scheme is:
- You come to the bank provided by the refinancing service, and documentarily confirm its platform.
- Then go to the bank-lender. It is necessary to know if there is no, according to your loan agreement, the moratorium on the early repayment of the loan, and whether the bank agrees to it.
- You return to the refinancing bank and sign the appropriate contract. At the same time, as a rule, the Bank himself lists the money to the primary lender and decides with it all organizational issues.
What is the difference from the restructuring of the loan?
Refinancing of the loan should not be confused with its restructuring. The latter implies a change in the loan amount, its term, interest rate and other essential conditions already existing loan agreement. That is, you can come to your bank, write a statement, for example, to extend the term of credit. The bank will consider it and decide on the restructuring of your loan. As a result, you will receive a new repayment schedule, a new amount of payments, but the agreement will remain the same with the same subject.
When refinancing is New treaty. In addition, subjects of the agreement are usually changing. The fact is that refinancing can occur both in a bank that issued an initial loan and in any other. But banks rarely refinance their own loans – it is not profitable. Therefore, the client has to contact credit institutions with special refinancing programs.
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How to minimize debts using refinancing?
So, the dedication allows you to:
- reduce interest rate;
- increase crediting time;
- change the amount of monthly payments;
- replace a lot of loans in different banks in one.
But to minimize debts at the expense of these bonuses, it is important to know about "Underwater stones" refinancing.
First, it makes no sense to use the dedication to get rid of small consumer loans. Refinancing benefits are manifested with long-term lending to large amounts. For example, for a young family that has taken a mortgage, a decrease in the rate even for 2-3% will be a significant proper budget.
Secondly, it is important to compare the cost of registration of a new loan with the savings that he promises. In particular, if the bank granted the initial loan charges a fine for early repayment of the loan, then is it worth the game of the candle?
Thirdly, if the primary loan had a mortgage, it moves to a new lender. For example, with the car loan, the car is in the pledge of the bank. Deciding to take advantage of the shutdown, you will need to re-transfer a deposit to the refinancing bank. And while this procedure is going on, you will have to pay increased interest to the bank, since at this time it is not secured by anything. When all the formalities are settled, you will be able to pay the interest rate specified in the loan refinancing contract.
Thus, to minimize debts, it is important to carefully calculate the benefits of the "loan loan". You can do this with a special calculator.
Have you ever used a refinancing service? Share your experience in the comments.