What is loan refinancing

The loans - part of our lives. It is difficult to find a man who never took the credit in the bank. People make out mortgages, credit cards give birth, take the rest of the loan and the purchase of fashionable gadgets. lending allows get what you want here and now. But when the borrower several loans in different banks (all their interest, terms and fees) can be confusing. Overdue payment - impose a fine; and miss - spoil credit history. Today we tell you about this financial instrument as refinancing, which allows to avoid these troubles.

What is a refinance loan?

The term "refinancing" is formed from two words: the Latin re - «repeat» and financing, that is onerous (credits) or for free (eg, subsidies) to provide funds. In the context of consumer credit

Refinancing - this a new loan in order to repay the loan with another bank on more favorable terms.

In other words, it is a new loan to pay off the old one. (Often referred to as Refinancing - refinancing.) According to the legal nature of the refinancing loan is the target, so in the contract states that the bank allocated the money goes to pay off existing debt with other financial institutions.

In some cases, resorted to a loan refinancing? A typical situation - changing market conditions and the reduction of interest rates on loans. For example, you took a mortgage in 2005. Interest rate was then 20%. You have paid for almost 10 years, and suddenly discovered that another bank annual total of 15%. And since you pay for another ten years, you go to the other bank and renegotiate a mortgage contract. As a result, you can significantly lower your monthly payments.

Who and how can get a refinance?

When you refinance to a borrower put forward the same demands as in the design of a conventional loan. That is, they must be able-bodied citizen, having a certain seniority and level of income, with positive credit history. According to these factors is estimated customer solvency.

Thus, in-lending, most likely, will refuse sloppy payer is in delay on the current loan.

Driving consumer loan refinancing as follows:

1. You come to the bank providing refinancing service, and documentary confirm their ability to pay.
2. Then you go to the lending bank. It is necessary to find out if, according to your loan agreement, a moratorium on early repayment of the loan, and if the bank agrees to it.
3. You return to the refinancing bank and sign a corresponding agreement. At the same time, as a rule, the bank itself transfers the money to the primary lender and decides with him all the organizational issues.

The new loan may exceed the amount of the previous debt. In this case, remaining after the payment of money the borrower has the right to dispose of at their discretion.

What is the difference of the loan restructuring?

loan refinancing should not be confused with its restructuring. The latter involves changing the loan amount, its term, interest rate and other material terms and conditions existing credit agreement. That is, you can go to your bank to write a statement, for example, to extend the loan period. The Bank will consider it and make a decision about your loan restructuring. As a result, you get a new repayment schedule, the new amount of payments, but the contract at the same time remain the same with the same subject composition.

If refinancing is new contract. Also usually change subjects agreement. The fact that the refinancing can occur both in the bank that issued the original loan, as well as in any other. But banks rarely refinance their own loans - it is not profitable. Therefore, the client has to apply to credit institutions that have special refinancing program.

How to minimize the debts with the help of refinancing?

So, refinancing allows you to:

• reduce the interest rate;
• increase the credit terms;
• change the amount of the monthly payments;
• replacing many loans at different banks one.

But to minimize the debts due to these bonuses, it is important to know about "Pitfalls" refinancing.

Firstly, it makes no sense to use refinancing to get rid of small consumer loans. The benefit of refinancing is manifested in long-term loans to large sums. For example, for a young family, accepting a mortgage rate reduction even at 2-3% will be a great help budget.

Secondly, it is important to compare the cost of making a new loan with the savings he promises. In particular, if the bank which granted the original loan, will charge a penalty for early repayment of the loan, whether the game is worth the candle?

Third, if the original loan has collateral, then it goes to the new creditor. For example, a car loan when the machine is in the mortgage bank. Deciding to take advantage of lending, you will need to re-register the pledge in the refinancing bank. And while there is this procedure, you will have to pay the bank increased interest rate as at the time of his loan is not secured by anything. When all the formalities are settled, you will be able to pay the interest rate stipulated in the loan refinancing agreement.

Thus, to minimize debt, it is important to carefully evaluate the benefits "of credit for a loan." This can be done using a special calculator.

Have you used the service ever refinance? Share your experiences in the comments.

As advertising