If you’ve been paying off a personal loan for a while now you may have started thinking about ways to pay off your loan faster. Or, perhaps you’ve noticed that since you took out your loan some great new interest rates have appeared on the market. But, it’s too late now, right? You’re locked into a contract with an interest rate that is perhaps a bit higher than what is currently being offered. What if we told you that refinancing your personal loan was an option? Not too sure what refinancing is or how it works? Read on to see just how it can benefit you.
What does it mean to refinance a loan?
Refinancing a personal loan is the act of applying for a new personal loan, either with the same lender or a new one, and then using the new funds to pay off your existing loan. You then make ayments on your new loan at the new interest rate and terms.
What are the benefits of refinancing a personal loan?
There are many benefits to refinancing an existing personal loan. From better interest rates to more favourable loan terms and repayment lengths, refinancing a personal loan can bedone for a number of different reasons.
Better interest rates
The main goal of refinancing a personal loan is to achieve a lower interest rate than what you’re currently being charged. This can be a huge benefit to you as generally by achieving a lower interest rate you can end up saving yourself a sizable chunk of cash in the long run.
Better loan terms
Securing yourself better loan terms – be that a shorter or longer repayment period or different repayment terms and fees – is also a great benefit of refinancing a personal loan. Better terms for yourself can mean reduced repayments or a reduced loan term which will benefit you greatly. This can be a great way to get your loan paid off faster, especially if you opt for a shorter loan term.
Apply for extra funds
Refinancing a personal loan is also a great way to get your hands on some extra funds if you have a big expense coming up and are thinking of taking out another personal loan. Rather than taking out an all-new loan on top of the loan you already have, enquire about increasing your new refinanced loan amount and avoid paying two sets of fees and interest rates.
What are the disadvantages of refinancing a personal loan?
While refinancing, on the whole, tends to be a fairly advantageous move for your finances, there are a few things you should be aware of when you decide to refinance a personal loan.
It can take time to find the right lender and interest rate
You may have decided that you’re going to shop around for lenders and not stick with your current provider. If this is the case then you’re going to want to make sure you put in some good research before settling on your future lender. They’re all going to have different terms and interest rates so it really will pay to take some time and see which is the best fit for you. It likely won’t be an instantaneous decision and may take a bit of time.
New loan application fees
As you will technically be applying for a new loan there will be a good chance that you will need to pay application fees or an establishment fee. Keep this in mind when you’re assessing your finances.
It could affect your credit score
It’s also important to remember that when you apply for a new loan most lenders will conduct a credit check on your file. This check then appears on your file as a credit enquiry. Too many recent enquiries on your file can cause your score to decrease as it indicates to lenders that you are shopping around and could be in financial distress. Too many credit checks or too low of a score could cause potential lenders to think twice about your application or not offer you as good of an interest rate as you were hoping for. Try to avoid this by only submitting an application with a lender once you have done a bit of research and know which company you want to apply with.
Can you refinance a personal loan and consolidate your debt in the same loan?
Yes, depending upon how much debt you owe and a few other things such as your credit score and income level, you can refinance a personal loan and consolidate some of your other debt at the same time. This is a great way to make your finances more manageable by combining them into one easy repayment. You could also potentially save yourself some cash by not paying multiple different interest rates if you combine your debt into one refinanced personal loan.
If you’re able to secure yourself a lower interest rate with better terms when you decide to refinance a personal loan you could save yourself months or even years of repayments if you are able to consolidate all your debt into the one loan.
Is refinancing your personal loan the right move for you?
If you have been paying off a personal loan for a while now and you’ve noticed that your interest rate seems a bit high compared to today’s market, or you’re looking for ways to make your loan work better with your finances, then refinancing your small personal loan could be a great option to consider. With the potential to obtain lower interest rates and better loan terms you could save yourself a fair amount of money purely by refinancing your loan to a more favourable interest rate or product.
With the possibilities to also increase your loan amount or consolidate other debt into one easy-to-manage loan, refinancing your personal loan could be a great option for you and your finances moving forward.