So often we hear about refinancing loans. Usually, it will be in reference to mortgages, but this is not always the case. You can certainly refinance personal loans as well, and even credit card debt. The tricky thing is figuring out how to do so.
Today, that is what we are looking to unpack for you. Do not worry if you are not quite familiar with refinancing and how it all works just yet! It seems intimidating, but by the end of this article, you will have a much better understanding of it.
As a quick debrief before we get started, though, let us discuss what refinancing is. To put it simply, it is just when you take a loan that you already have, and you take out another loan to pay off that balance. Ideally, this is to get a more favorable contract than your previous one – otherwise, it is not all that useful.
Generally speaking, though, to get the beste refinansiering plan, it will take some patience and a bit of research on your part. With that said, here are some steps that you may want to take along the way! Luckily, it is really not that difficult.
Make a Choice: is Refinancing Right for You?
Perhaps this seems a bit obvious, but the first thing that you will want to do is decide whether or not refinancing is an appropriate option for you right now. What might this entail, though? Well, it will involve a bit of math, although thankfully you can use external websites to do the calculations for you.
Essentially, you will want to calculate what the price of the refinancing loan will be. There will be some fees involved up front, as well as the fact that most of the time there is a charge when we pay off a loan before the repayment period is over. That will be extra cash factored into the cost that you will need to take into account when you are thinking about your overall budget.
Given all of that, it is easy to see how the fees can add up pretty quickly. That is not the only thing to think about, though – you should also double-check your credit score. Unfortunately, most lenders have some fairly strict requirements for credit ratings when it comes to refinancing. Of course, there are some exceptions.
If you find that your credit score is on the lower side, it will restrict your pool of potential financial institutions. Now, it will not be impossible to get a refinancing loan this way. It will simply be more difficult.
So – You Want to Refinance, but how?
When you have made the decision that refinancing is a good option for you, your next step will be to figure out how you want to do that. By this, we mean that you need to pick the vector for your new debt. There are a few options here.
One is to get a debt transfer credit card. In Norway, these are not necessarily the most popular option. That said, if it is something that interests you, you can always ask your current lender or search around for a financial institution that offers one. Typically, they have extremely low interest rates, which is what makes them good for this purpose in the first place.
Otherwise, there are personal loans that allow you to accomplish something very similar. The difference is how they show up on your credit score and how you end up paying the bills. There’s some further information on them here, https://www.oecd-ilibrary.org/content/paper/budget-v6-art2-en, but the idea is that you take out this new loan that has a lower interest rate (or lower monthly payment) and buy out the previous debt.
They are quite similar in nature, so you will have to pick what is most convenient for you. A lot of it will probably come down to what is being offered near you, so it will likely be a personal loan for this purpose. Both really do work just as well, so it is nothing to stress over too much.
It is Time to Shop Around for Interest Rates (and Lenders)
Now that you have decided that you are going to get a refinancing loan and you know what method you are using, it is finally time to shop around online. Admittedly, it does sound a bit odd to say that we are “shopping” for interest rates, but it really is the best way to put it. As was mentioned above, there are some websites that can help you out with this if you want to use them.
Most of the time, there will be some sort of field for you to input the size of the refinancing loan you will need. From there, the site can crunch the numbers for you and tell you what your approximate interest rate (and payments, down the line) will be. It is a bit of an imperfect measurement since the currency is constantly changing value, but it remains a valuable tool, nonetheless.
Something else that you will want to keep in mind while you explore your options is the origination fee. These should be listed on any comparison site that you check out, but sometimes you may need to go directly to the lender’s page to find out. This is where a lot of the costs upfront come from, so make sure to keep track of it and compare it as well as the interest rate.
Do You Pre-Qualify anywhere?
There are a lot of moving parts here, as you have already seen. However, as you are searching for a financial institution that will fit your needs, you may also want to think about whether you have received any pre-qualification offers. This has become an increasingly popular way for lenders to reach out to potential borrowers.
Although it is not necessarily a guarantee that you will be approved even with the pre-qualification promotion, your chances are much higher. They base their audience for those emails or physical pamphlets on general credit score brackets, after all. So, you may want to sort through your mail again to see if you have got an offer already!
Pick Your Lender and Apply!
Naturally, the last step here is to pick the financial institution you want to refinance with and submit your application. It works pretty much the same as any other type of credit agreement, so you already know the gist of it. The biggest change will be the category of application as well as what you will list if they ask what the purpose of the loan is.
Otherwise, it will be mostly the same. You will still need to provide plenty of paperwork on your end. This could include a passport or other identifying documents, financial history, and more – it will depend on the lender. Basically, make sure that you have those types of documents on hand just in case.
From there, it is a bit of a waiting game. If you are worried about your approval odds, you can always apply to multiple lenders. After all, submitting the application itself is not legally binding in any fashion. You are totally free to apply to as many as you want – so long as you do not mind the slight dip in your credit score for each inquiry performed.
Bearing that in mind, it is best to pick one or two that are your top choices. Ideally, you will be approved for one of them between the two. If not, you can expand your horizons after that. When the applications are submitted, play the waiting game – it will not help to pester the lender about a response.
When you do get that approval, then all that is left is to finish the transaction. Pay off the old debt with your new loan and you will be all set – you will have successfully refinanced the loan! Hopefully, this article has helped you to see that it is really not as challenging as it seems.