Online Personal Loans Refinancing: Everything You Need to Know About It! - Financing Panda: Latest News on Finance, Loan, Business


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Sunday, February 27, 2022

Online Personal Loans Refinancing: Everything You Need to Know About It!

Many people resort to personal loans when they need instant cash for their unpredicted expenses. When it’s an emergency, you may accept any loan offer that first comes your way. However, over time, you may realize that other options are offering lower interest rates than what you are paying at present. At that time, you may consider refinancing your loan. You may consider personal loan refinancing to reduce its interest rate, reduce your monthly EMIs, or modify your repayment term.

Personal loan refinancing enables you to replace your current loan with a new one that has a lower personal loan interest rate or more favorable repayment terms. If you feel refinancing might be the right option for you, here’s everything you must know before taking the next step.

Times When Refinancing is the Right Thing to Do

Refinancing your loan always makes sense if it helps you save money. It might be possible in multiple scenarios. Here are some of them:

  1. Revised Repayment Tenure: During the loan term, your income may increase or decrease, according to which you may want to increase or decrease your EMI amount. Requesting a longer loan term will reduce your EMI amount while shortening your loan term will increase your EMIs. If that’s the case, refinancing your current loan will make repayment easier for you. A personal loan EMI calculator online will help you choose the tenure best for your repayment capacity.

  2. Different Interest Rate Type: There are two types of interest rates: fixed or floating. Some people are comfortable with one and some with another. So, if you want to change your interest rate type, you may consider loan refinancing.

  3. Improved Credit Score: The lender must have charged your interest rate based on your credit score. If you have improved it over time, refinancing may help you get the same loan at a lower interest rate.

  4. Avoid Balloon Payment: Some lenders require you to make a bigger payment at the loan term-end. Refinancing your loan ahead of time avoids this type of balloon payment.

Refinancing your loan will incur fees, such as application fee, origination fee, etc. Your current lender will also charge a prepayment fee to pay the loan before the loan term-end. Therefore, enquire about these charges before opting for a loan refinance. The benefits you gain by refinancing should be worth the charges you pay for it.

Benefits of Refinancing Your Loan

If done at the correct time and with the right purpose, loan refinancing can deliver several benefits to the borrowers. These include:

  • Reduced personal loan interest rate
  • Easier loan repayment with reduced EMIs
  • Earlier loan repayment with prolonged tenure 
  • Improved credit score with regular repayment made easier
  • Option to get a top-up on your existing loan

5 Steps to Refinance Your Loan 

These are the five steps involved in refinancing a personal loan: 

  1. Check Your Credit Score

The first step is to check your credit score. You may get better interest rates if you have improved your score since the last loan application. Having a credit score that meets the lender’s minimum requirement is also crucial to gain refinancing eligibility.

  1. Compare Lenders 

If you have a decent credit score, compare lenders for their terms and conditions to find the one that provides you maximum benefits. Firstly, you must contact your current lender to negotiate the loan terms. If you are not satisfied with their offer, contact other lenders to look at their loan terms, charges, and interest rates.

  1. Apply for the Loan Refinancing

After finalizing a lender, provide all the required details and submit documents to complete your loan application procedure. Documents often include your identity, income, and address proof. Look at the lender’s eligibility conditions to ensure that you qualify for the loan. Once you apply for the loan, wait for the approval and disbursal.

  1. Pay Off the Current Loan 

Once you receive your new loan in your bank account, pay off your current loan balance using it. The lender may charge prepayment penalties if applicable. Wait for confirmation of account closure from your lender.

  1. Start Paying New Loan EMIs

Once you pay off your current loan, you now have a new loan to pay off. Choose a repayment tenure that best suits your repayment capacity using a personal loan EMI calculator online. Pay its EMIs on time to improve your credit score and enhance your credibility for the future. Activate the e-mandate to pay your EMIs automatically from your bank account.

If you consider personal loan refinancing, assess its benefits, and ensure they are worth the costs you have to pay for the action. Finally, check your credit score, study the fees and interest rates, and get your loan refinanced to gain the benefits it offers. However, refinancing is the best option if done at the initial stages of your loan. If you have already paid most of your loan amount, refinancing it may cost more than the benefits you get.

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