What is a refinance loan, or How to minimize debt




Credits – part of our lives. It is difficult to find a person who never took out a bank loan. People make out mortgages, credit cards give birth, take loans to rest and buy trendy gadgets. Lending allows you to get the desired here and now. But when the borrower several loans in different banks (all their interest, dates and fees included), you can get confused. Overdue payment – impose a fine; and miss – spoil credit history. Today we tell you about this financial instrument as refinancing, avoids these troubles.What is a refinance loan?

The term “refinance” is formed from two words: the Latin re – «repeated,” and financing, ie compensated (credits) or free (eg, subsidies) to provide funds. In the context of consumer credit

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

In other words, this new loan to pay off the old one. (Often referred to Refinance – refinancing.) By the legal nature of the refinancing loan is the target, since the contract specifies that the bank allocated the money goes to pay off existing debt with other financial institutions.

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

When you refinance the borrower to put forward the same requirements as for 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. On these factors is estimated solvency client.

Thus, in-lending is likely to refuse sloppy earlier, is in delay on the current loan.

Consumer credit refinancing scheme is as follows:

You come to the bank, to provide services of refinancing, and documentary confirm their ability to pay.
Then go to the lending bank. It is necessary to find out whether, according to your loan agreement, a moratorium on the early repayment of the loan, and whether the bank agrees to it.
You return to the refinancing bank and sign the contract. At the same time, as a rule, the bank transfers the money himself the primary creditor and deal with it 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 from the restructuring of the loan?

Refinancing a loan should not be confused with its restructuring. Last involves changing the loan amount, its duration, interest rate and other material terms of an existing loan agreement. That is, you can go to your bank, write a statement, for example, to extend the loan period. The Bank will review it and make a decision to restructure your loan. As a result, you get a new repayment schedule, the new amount of payments, but an agreement that will remain the same with the same subject composition.

When you refinance is a new contract. Also usually change subjects agreement. The fact is that 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 customer has to contact the credit institution with 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;
replace many loans in different banks one.

But in order to minimize the debts due to these bonuses, it is important to know about the “pitfalls” of 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 for 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 savings, which he promises. In particular, if the bank which granted the original loan will charge a penalty for early repayment of the loan, then it worth it?

Third, if the original loan was collateral, it shall go to the new creditor. For example, if a car loan car is pledged to the bank. Deciding to take advantage of lending, you will need to renew the pledge for refinancing bank. And while there is this procedure, you will have to pay the bank increased interest, since that time his loan in no way guaranteed. When all formalities are settled, you will be able to pay the interest rate stipulated in the contract refinancing loan.

Thus, to minimize debt, it is important to carefully evaluate the benefits “credit on the loan.” This can be done using a special calculator .

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

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