If you are currently struggling with repaying your personal loan, refinancing could be the solution you need. There are, however, many things to consider before going forward. This is not a viable option for everyone with a personal loan, but it can work for many. In this article you will find all the information you need to make the right choice. This is definitely not the kind of thing that you want to rush into by any means.
What does it Mean to Refinance a Loan?
Refinancing a loan basically means that you get a brand new loan such as those with no credit check and use the money you receive to pay back your old lender. The whole purpose of this is to get a better interest rate and more ideal overall terms. You will be required to pay back the loan by a certain date, just as you would with any other type of loan.
First you will need to prequalify for a new loan. This involves submitting an initial request, which is not the same as an application. When the lender responds to your request, you will get some initial information that can be very useful. These details include the interest rate you will get on your loan as well as how much it will cost overall. You definitely want to do this before applying.
Do the Math
After you have prequalified for a loan, you must determine whether or not it is going to be worth it based on the cost of the new loan. All you have to do is see if the new loan is going to be cheaper than your current one. Don’t forget to factor in the interest and other fees that you will have to pay the new lender.
Submit Your Application
Next you will have to submit a proper application with another lender. You only want to do this after you have taken the time necessary to find a good lender that is legitimate and reputable. Remember that submitting too many applications at once can damage your credit.
You will be able to fill out your new loan application online, and it only takes an hour or so at the most. Make certain that you have submitted all of the required details, and that they are all completely accurate. The last thing you want to do is lie on a loan application, because it will only decrease your odds of getting approved.
Paying Off Your Current Loan
If you receive funds from a new lender, you will have to use them to pay off your current loan. These days a majority of lenders will transfer the money right into your bank account. This means that you will be responsible for paying off your old lender. It is important that you do this promptly.
When to Refinance a Personal Loan
There are certain times when it just makes sense to refinance a personal loan, including:
- Your credit is better: If you have managed to improve your credit score recently, you could get a better rate with refinancing. Make sure that you take a look at your credit so you know where you stand.
- You want to clear your balance faster: When you are looking for a way to pay off the money you owe on your loan quickly, refinancing can help.
- Switch interest rates: Some people refinance their personal loans to get a fixed rate. If you currently have a variable rate and want to make a change, this could be an effective option.
Using an Online Calculator
There are a number of websites on the internet that have calculator tools that will help you figure out how much you currently owe and what your new rate will be if you refinance. These calculators can be incredibly helpful when it comes to figuring out if refinancing is the right option for you.
Benefits of Refinancing
You will quickly discover that there are lots of benefits that can come with refinancing your loan. Ideally you will get a lower interest rate, which will let you pay off the money you owe faster. If you are struggling to pay off your personal loan because the rate is so high, this can be very helpful.
Refinancing a personal loan is something that could benefit you greatly, but you need to approach it carefully. Some people who refinance their loans actually end up worse off than before. This is why you have to follow all of the steps outlined in this article. As long as you take this advice, you should come out on top. Many people are refinancing their personal loans to make them more affordable. Just make sure that you do your research before making a final decision.