If you are like most people, then you have borrowed money at some point in your life and you know that the process of repaying a loan can sometimes make you feel trapped in that obligation. Refinancing an already existing loan is therefore the last thing that many people would consider. However, there are situations where refinancing a loan actually makes sense.
Refinancing a mortgage can be a dangerous move especially if done at the wrong time or under not so favorable circumstances. However, there are instances where doing so might actually be an advantageous move. Here are some of the situations where refinancing a loan is sensible.
When you achieve a higher credit score
To achieve this you need to have a steady income and you should also make sure the bills are paid on time. This includes timely debt payments. Doing this will increase your credit score and increase the chances of your bank or lender allowing you to refinance a previous loan.
When there are changes in interest rates.
If you have a loan with a variable interest rate, it might be a good idea to consider refinancing your loan so that you can secure a fixed rate. This will allow you to avoid paying higher interest rates when the rates escalate as opposed to having a fixed rate.
When in urgent need of money.
Refinancing an existing loan might be a necessary step in case you find yourself in an emergency of sorts. Some banks may agree to refinance an existing loan and perhaps even consolidate it with the new loan or with credit card debt so that you can make the payments collectively.
Refinancing can be a viable option when you want to pay less.
Your loan repayments might be uncomfortably high and but refinancing can provide an avenue for reducing the repayments. One of the most common ways of achieving this is by extending the repayment period. This effectively lowers the amount that you need to pay. It is a good option for anyone that might be cash strapped.
Refinancing different loans into one.
When you have multiple loans, the different rates on those loans might mean that you pay a marginally higher amount than you would pay if it was a single loan. Refinancing may allow you to consolidate those loans. The interest rate repayments might be lower, thus allowing you to save some of the cash that you would have repaid.