Over the years, financial products like Personal Loans have played a key role in transforming the way people view lending. Personal Loan allows individuals from all walks of life to fulfil their specific goals without worrying about funds.
However, did you know that you can also refinance a Personal Loan? Yes, you read that right. Let’s learn more about loan refinancing, and when and how to go about it.
What is Loan Refinancing?
Loan refinancing refers to the process of applying for a new loan to pay off your current loan at better terms. You can choose to go for refinancing either with your current lender or a different lender.
The purpose of refinancing is to reduce the interest rate and subsequent EMIs on your loan. As soon as the refinancing process is complete, you will have to begin paying off the new loan at updated interest rates and repayment tenure.
When Should I opt for Refinancing a Personal Loan?
Here are some of the most common scenarios when you can opt for refinancing a Personal Loan:
- Excellent Credit Score – If your credit score is 750 or above and you have a reliable debt repayment history you can go for refinancing. Your high credit score will allow you to qualify for a low-interest rate on your new loan.
- Changes in Income – If you have received an appraisal or increment in your salary, you can apply for a loan with a lower interest. This will also lower your monthly repayment amount, so you can pay off the loan on time.
- Paying Off the Loan Quickly – If you have received increment in your salary and can afford to pay a higher EMI, then refinancing would be a good option. With refinancing, you can opt for a shorter tenure and pay off the loan quickly.
- Switching Rate Type – If your current loan terms are according to a variable interest rate, then you might consider refinancing. You can switch to a fixed-interest rate loan and make consistent EMI payments.
- Affordable Fees – When you opt for refinancing your Personal Loan, it may incur some fees, such as prepayment and/or application fees. Be sure to factor in fee costs and check if you can afford to pay them if you are considering refinancing.
When Should I NOT opt for Personal Loan Refinancing?
- Minimal Loan Balance – If your loan balance is low, avoid refinancing and incurring more charges in the process.
- Higher Personal Loan Interest Rate – If market trends suggest a rise in interest rate, then you should probably reconsider your decision to refinance your loan.
- Repayment Tenure Nearly Over – If you’re nearing the end of your repayment tenure, then it would be better to pay off the existing loan.
How Can I Refinance a Personal Loan?
- Evaluate Your Financial Requirements – Figure out how much financing you require now. Once you know how much you need, it would be easier to look for refinancing options that best suit your specific requirements.
- Check your Credit Score & Report – Check your credit score and credit report to find out if you qualify for refinancing your Personal Loan.
- Research for the Best Rates & Terms – Conduct research on the rates and terms offered by different lenders and lending institutions. This will help you find the best deal for yourself.
- Discuss Options with the Existing Lender – Once you are aware of the trending market rates and terms, negotiate with your current lender. Discuss to chalk out the best terms that are mutually agreeable.
- Apply for New Loan – When you have decided which refinancing terms suit your needs, go ahead, and apply for a new loan.
- Commence Repayment Under New Terms – Finally, you can start repaying your new loan under updated terms and interest rate.
Benefits of Loan Refinancing
- Competitive Interest Rate – When you opt for loan refinancing, you can get better offers on your Personal Loan interest rates.
- Quicker Loan Repayment – Updated loan repayment terms help you pay off your loan quickly and efficiently.
- Extended Repayment Tenure – On the other hand, you can experience more flexibility in loan repayment by extending the period of payment.
- Consistent Payment – Loan refinancing allows you to pay off your loan in easy and convenient EMIs without affecting your overall budget.
Going by the points, remember to consider all factors carefully before opting to refinance your Personal Loan.
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