Loan refinancing hides the debtor’s ability to transfer one of his already unfavorable loans to another provider, where he will repay it on more favorable terms (lower interest), also according to a new payment schedule. It is possible to save thousands of crowns in this way.
The borrower can also refinance the loan multiple times; most providers offer early repayment of the loan (it is necessary to calculate everything in advance, including penalties for early repayment).
A very similar way to favor your loans is consolidation. However, the boundary between refinancing and credit consolidation is not always precisely defined, and so these concepts often merge. Do you know the difference between them?
Both consolidation and refinancing are designed to simplify and, above all, favor loan repayment. The main difference between them is that refinancing refers to the transfer of only one specific loan, while consolidation means merging several loans into one single with more favorable terms.
Who provides loan refinancing?
You can refinance your loan with a wide range of financial entities: banks and non-banks, you can also choose to refinance under one of the P2P platforms (ie, “people lend to people” where more ordinary people can participate in your refinancing).
How does refinancing typically take place?
- The first step before refinancing itself should be to inform the borrower whether the existing provider can offer him more favorable terms. Indicate your dissatisfaction with the loan, and discuss the monthly installments and the interest rate. You may be pleasantly surprised that you will be able to negotiate the advantage of your credit, banks often struggle for clients not to go to the competition.
- Have you failed? Do not throw a flint into a rye, look for a bank or non-bank offer and calculate which one would offer you to refinance the most. Attention! Remember, however, the fees associated with early repayment (for your existing bank), as well as the conditions that a new provider may designate in the event of refinancing (for example, the need to have an account with that company, fees for setting up and running it, etc.) . Rate refinancing bids not by interest, but by APR, which includes not only interest, but also other associated charges. But even here you can also bargain, banks sometimes like to compromise with the client not to lose it.
- Do you know that you can also work with one of the financial advisors who will prepare a list of individual bank offers for you and find the most advantageous for you? You do not have to do it with all the banks, and you will make the work easier. (you can search for financial advisors here: najdi-poradce.cz, an interesting article on how to find a good advisor can be found here: www.datalife.cz/jak-poznat-dobreho-financniho-porancni/)
- Have you already chosen? Great. Next, you’ll need to provide your new provider with a credit balance confirmation.
- The refinancing process then looks like your new provider will pay the rest of the loan to you for your old bank, and you will then repay it according to the new payment schedule and with more favorable terms.
What to watch out for?
- Providers often attract their clients to low interest rates. Of course, it is often just a business trick, because in fact you will pay a lot more for other administrative fees or penalties that interest does not. Therefore, when evaluating and comparing individual bids, pay particular attention to the APR (annual percentage rate of charge), which includes other associated fees in addition to interest. Also find out in advance what you would theoretically pay for the new bank sanctions.
- Does your former provider require a penalty fee for early repayment? If so, it is necessary to think about it when calculating and scheduling a transfer.
- And ignore the advertising slogans promising the best loans or refinancing. Nothing really tells us what the situation may be in reality (whether in good or bad).