When Should You Think about Refinancing Your Loan?

Have you ever taken a personal loan only to find out later that it is not suitable for you? Maybe you found out or decided later that it's too expensive! Well, if that’s your problem, we are going to show you a way out of it: loan refinancing.

Right now, pay cuts and LWPs (Leave Without Pay) have become very common, especially with the advent of the Covid-19. Since your income level has decreased, perhaps you are being forced to cut costs yourself. Maybe you are even in debt, especially when 40% to 50% of your income is going to meet the EMIS of a loan you took earlier. If there are such obligations, you need to stop and reevaluate your options. If you want better terms, look no further than refinancing your loans.

What is refinancing?

Refinancing is the process through which you replace your current loan with a new loan with different, and often better, terms. This new loan is used to pay off the current one, and since the new one has better terms and conditions, it is easier to repay back. You can therefore improve your financial condition quite quickly. Of course, refinancing loans depend on one lender to another, but generally, the process is similar.

1. You have a current loan about whose terms and conditions you are not happy with, or which you are finding it hard to repay.

2. You approach a lender and ask for a loan with better terms and conditions. You apply for this loan.

3. You use this loan to repay the first loan.

4. You keep making your EMIs for the second loan and repay it on time.

But why should you even think about refinancing?

There are downsides to refinancing, of course. It is expensive and takes time. Additionally, the new loan may not have the best features of the previous one. But despite this, there are many benefits.

1. You save a lot: Refinancing saves you money through interest. The new loan being better than the last one, it comes with a low rate of interest. Otherwise, why would you refinance in the first place, right? Over time, you save a lot of interest in the new loan.

2. Lower monthly payments: Refinancing can lead to lower EMIs, which again saves you money. Thus, you get a better cash flow management and get more funds to spend on other things in your life. Besides, the more money you free up, the more you can use to repay the loan faster. Additionally, the balance is smaller than the last loan, and thus the loan term is longer. This means you pay lower EMIs.

3. Get short term loans: You can opt for short term loans too. For instance, you can convert a 10-year loan into a 5-year loan. This leads you to become debt-free faster.

4. Debt consolidation: If you have a lot of loans, you can use refinance to consolidate all of them into a single line of credit at a lower interest rate.

We hope this article helps you in understanding more about Refinancing.