Personal Loan has become the most opted-for financial tool; many have taken it at least once in their lifetime. So if you are also staring at the question, “Can I refinance my Loan?” we’re here to answer it!
Continue reading to get a broad-gauged perspective that includes refinancing basics and whether you can refinance your loan.
What is refinancing?
Refinancing refers to replacing the present credit terms usually associated with loans or mortgages for potential savings on debt payments when the interest rate falls. In simple terms, refinancing is when you want to get a new loan with a low-interest rate. The changes preferred by an individual in refinancing are:
- Interest rate change
- Payment schedule
- Other terms in the contract
The Right Time for Refinancing
Here are some substantial scenarios to consider to check your Personal Loan eligibility:
- Consider your requirements.
- Check for ultimate financial benefits when planning for refinancing.
- Keep an eye out for a drop in interest rates.
- If there is an increase in your credit score.
What is the eligibility for refinancing my Personal Loan?
There are no clear-cut rules, and it varies for different lenders. Generally, they might ask about your credit score, income, debts, and assets. But here are some of the fundamental requirements;
- The credit score must be above 700.
- A 20% home equity.
- The debt-to-income ratio must be lower than or equal to 43%.
How to refinance a Personal Loan?
If you have decided to explore Personal Loans for refinancing with the amount you require, consider the following to gain successful Personal Loan Finance:
- Identifying your credit score
It is the steppingstone for refinancing your Personal Loan. First, check the score online or in your lending institution because each lender considers a particular credit score before providing a loan.
- Select an appropriate loan
You can choose to go with the options given to the lender without a hard inquiry. But research different authorised financial institutions and lenders to get the best rates. Check out the following pointers before you find your right loan:
- Interest rate
- Term period
- The estimated monthly repayment amount
- Period of repayment
- Origination fee
If the interest rate is not lower than your current Personal Loan, it is not worth refinancing. Also, negotiate the current rate with your lender to withhold the original payment if you’re starting a new loan.
- Fixing the right option
Once you select an appropriate Personal Loan, apply for the new loan to your lender. Upon approval, you will get funds in a few business days. Ensure to use this amount to pay your old loan and payment penalties.
- Begin your new loan payment
Consider signing up for an autopay to avoid due payments in refinancing the new loan. It prevents you from paying the additional late fee apart from the loan amount.
What benefits do I get from refinancing my Personal Loan?
Here are two significant benefits of refinancing:
- Reduction in monthly payments
- Save the overall interest rate
But these cases might not work for you all the time. For instance, if your 30-year mortgage has 25 years left, another 30-year refinancing might cut down your monthly payment but can skyrocket your interest payout. As a result, you end up paying 35 years for a 30-year loan. But having a 25-year loan and refinancing it with a 15-year mortgage may increase your monthly payment but reduce your interest rate pay significantly.
What are the alternatives to refinancing a Personal Loan?
Yes, if you have a loan in the form of debt consolidation. Here are the two best alternatives you can consider in case of debt consolidation:
- Balance transfer card– This is an alternative to a Personal Loan. The card allows you to combine outstanding credit balances into one card with a low-interest rate.
- Tally– It is another alternative to refinance debts. It is a payout credit card app that provides instant debt payments. Also, you can pay your outstanding credit card balances through its low-interest line.
Ready to get started?
Check out the market trend and your requirements to refinance your Personal Loan. Let the interest rate go below the existing loan to get the most out of your Personal Loan upon refinancing. Also, opt for long-term loans to save interest. But most importantly, don’t forget to fit this decision into your financial state!
