Refinansiere Lån- Understanding the Basics of Refinancing Loans

Refinancing a loan(s) is the process through which one gets a new loan to offset one or more outstanding debts. This is usually a remedy that most borrowers resort to when they have high interest loans that are becoming difficult to repay. Additionally, a refi loan can be taken out when interest rates have become lower or the borrower wants to get lower monthly repayments. 

This financial instrument can be a great tool to get out of debt but only when utilized properly. Sadly, so many people do not know how to make the best of this product and end up in more debt than when they started out. However with best refinance loans or besterefinansiering av lån as Norwegians will put it, you can achieve your aim of getting out of debt. So stay with us while we explain the basics of this concept and how you can get the best of it. 

How Does Debt Refinancing Work? 

Debt refinancing is also another term for refinancing of loans and there are many reasons why this happens. The most common reasons as we mentioned earlier is the need to reduce interest rate or change the repayment schedule. Other reasons include debt consolidation, freeing up some cash and changing the structures of existing loans. 

This process works fine for borrowers that have high credit scores because they have the leverage to negotiate better terms and conditions for the new loan and also get lower interest rates. 

With a debt refi, you are replacing one debt with another one which is why people often use it when interest rates change so that their new contract will be influenced by the new interest rate climate. For example is if the Federal Reserve slash interest rates, every new loan or financial instruments will come with lower interests and better rates and conditions. 

Under this circumstance, the borrower can have a debt refi that allows them to pay interest rate that is much lower over time on the same type of loan. Bear in mind that there are loans that attract penalties if the borrower pays before the repayment date. So you need to do your due diligence to know whether the refi is worth it with all the prepayment penalties and fees.

Reasons for Debt Refinancing 

We have mentioned several reasons why one may want to refinance a loan. Find below a detailed summary of those reasons:- 

1. Lower Interest Rates – This is possible if a borrower’s credit score has improved from the last time they took out a loan. It could also be that the interest rate climate is now favourable to borrowers and they can get lower interest rates. If this happens, the borrower can save substantial sum of money with a debt refinancing. 
2. More Affordable Payments – Debt refi may be an option for people who are finding it difficult to make their monthly payments. The terms they have to negotiate for will have to include lower interest rates or lower repayments which will mean elongating the repayment duration. 
3. Shorter Repayment Duration – This can be a viable reason for refi with those who want to pay off their debts faster than their current loan term dictates. So they take out a loan with shorter repayment duration to pay off the existing debt thereby saving on total interest paid at the end of the repayment duration. 
4. Change of Credit Structure – Sometimes people want to change from fixed interest rate to variable rate. Fixed rate means that the interest rate that the borrower pays remains the same all through the duration of the credit facility while the variable rate is adjustable based on market conditions. Read this article for more information on this. 

Advantages and Disadvantages of Refinancing Loans

Much as we all agree that refi of loans can help one get out of debt faster but the truth is that there are some downsides that must not be overlooked. Let’s delve into some of the pros and cons of debt refinancing:- 

Advantages 

The following are some of the advantages of refinancing a loan:-

1. Refi can help a borrower lower their monthly repayment amounts to a sum that is easier for them to pay. 
2. You can change your loan structure from fixed interest rate to variable rate. This offers you monthly repayment s that is predictable enough for you to plan your budget. 
3. If you refi to a shorter repayment duration, you may be able to save money on the interest you would have paid at the end of the credit term. 
4. You can get lower interest rates if your credit score has improved over time or if the market conditions have changed to favour lower interest rates. 

Disadvantages 

1. Sometimes, you have to pay prepayment penalties if you pay before the due date of the credit facility. This means that whatever savings you make from lower interest and shorter payment duration may be lost to prepayment penalties.
2. Refi can affect your credit score because of the hard credit inquiry that will be carried out on your finances. 
3. If you get to make lower monthly payments, you might end up paying  more interest at the end of the loan. 

How to Refinance a Loan

Although the process of negotiating refi loans differs from lender to lender and also depends on the lender you owe and the one that you want to take out the refi from.Howver, there are general rules to this process so find below steps to follow as you contemplate taking out a refi:-

1. Examine the terms and conditions of your existing loan agreement to know the exact amount you you’re currently paying every month. Note the terms and conditions and the interest rates too. 
2. Check whether your contract stipulates a prepayment penalty for early repayment. 
3. After you have determined the value of the existing credit facility that you want to refinance, the next thing is to check out as many lenders as possible, starting with your current lender.  Compare their fees, interest rates and every detail of their offers to find the one that’s more favourable than your current agreement.  Visit this site https://www.moneymanagement.org/ to learn more about online lenders. 
4. Do not limit your search to only traditional lenders; also check out online lenders who are willing to give competitive rates which can help you save thousands or even hundreds of dollars. 
5. Gather your documents and go ahead to fill out your application.  Sometimes, it might be easier for you to apply through agents who work with a network of banks and lenders. 

Conclusion

We have discussed at length on the subject of refinancing your debt. Most often when people hear the term refinance , their mind go to mortgage; while this is one of the most refinanced debts, you can choose to refinance other credit facilities. These credits can be your auto, student, medical or personal loan. 

No matter the category of credit, it is very important that you take out time to consider all the tips that we have shared in this piece. It would not make sense at all for you to go through all the stress off refinancing and still end up in an unending cycle of debt.