The refinancing of a loan pursues the goal of planning loan liabilities from scratch. If, for example, a borrower takes out a car loan, installment loan and overdraft facility at the same time, he has the option of replacing all three individual loans with a single new loan agreement. http://www.tagsarea.com/installment-loans-bad-credit-online-bad-credit-installment-loans-1000/ for further explanation
Saving effect through better interest conditions
By merging individual loans into a new loan agreement, the borrower can negotiate better interest rates. Refinancing often manifests itself as financial relief for borrowers, particularly in the case of old loans with comparatively high interest rates that do not have an interest adjustment clause.
In contrast, it proves to be a disadvantage to refinance an installment loan if it is based on a variable interest rate. In this case, the contractual interest will be adjusted to the market development, so that a restructuring would bring hardly recognizable advantages.
Transparency and manageability
Refinancing a loan may not only result in a tangible cost advantage, but also enables the borrower to have an optimal overview of the current debt burden, which considerably reduces the burden on the debt administration in terms of bureaucratic effort. Furthermore, the refinancing opens up new economic freedom for the borrower.
Refinancing can postpone individual loans so that the borrower is granted financial freedom of movement.
In the first step, all of the loans used should be analyzed in full in terms of installment payments, interest rates and terms. A credit overview plan then lists all loans that differ significantly from the APR and a comparable competitor product. With these loans, a profitability calculation is now used to determine the extent to which new borrowing enables better credit conditions.
It should be noted here that additional processing and agency costs are incurred in the event of refinancing. Furthermore, it should be checked to what extent the old contract can be canceled prematurely without having to pay high fees. As a rule, however, it is possible to refinance a current account, mortgage, overdraft facility or installment loan without an additional “reimbursement fee”.
After a successful old loan repayment, a new loan can be negotiated. The creditworthiness of the borrower plays a central role in determining the interest rate. That is why it is particularly important to have all old loans properly paid off or canceled.