Refinancing means to service fully an existing loan with a new loan that would come with lower interest rates and a new term for repayment. It is done when a person wants to fulfill a loan obligation so as to avoid delays in repayment or to have a bad mark on their credit history.
When should one consider refinancing
There are many circumstances that would warrant the refinancing of a loan.Here are some that many people experience.
The loan repayment installment is too high
If you find that the loan installment you are currently paying is too much for your monthly income, it may be prudent to get a new loan and pay it off. In this way, you will get a new longer term, and the monthly installment will be lower.
When you can get better interest rates
If you have taken a student loan when in college some years ago and are paying higher interest rates, you may want to shop around for a financial lending institute that have more competitive interest rates. In this way, you will not have to pay too much interest.
Save your credit score
Loans such as student loans can reduce your credit score if repayments are not made on time. If you find yourself behind on the payments due to lack of funds, taking out a loan to pay the old one off may keep you in good books with your credit bureau.
Types of Refinancing
There are both federal and private refinancing options available to refinance student loans to those who want to pay off their old loan and get a new repayment plan.
Federal refinancing is where the government will assist you to repay your loan in place of a new one with a better interest rate. The interest rate in many cases is lower than the loan you took when in college.
Private loan refinancing
There are many private financial organizations that will off competitive rates of interest for refinancing your student loans. They will often approve your refinance application much faster than a federal refinancing program, and you can start your new loan soon.
Refinancing and Loan consolidation is an option for saving your credit score and making it easier to track your loans. You can make one payment as opposed to many small ones that can cause some headache and make you miss some payments.
Refinancing is growing in popularity, and you should also consider this option if you find yourself struggling to keep up or missing repayments.