Refinancing a loan means early repayment of the loan through a new loan.
Refinancing is not just about loans, it is possible to refinance a mortgage, a home loan, an overdraft debt or a credit card. Banks often offer online refinancing.
Loan refinancing is provided by both banking and some non-banking organizations. However, refinancing with non-banking companies may be linked to the problems and risks of these institutions.
How does refinancing work?
The loan refinancing process involves transferring an existing loan to another bank. By refinancing, banks acquire new clients from other banks. In order to attract new clients, banks offer to take over debt from another bank’s loans and promise the client a lower interest rate and often other favorable terms. For the client it ultimately can mean savings of up to thousands of dollars.
In order to obtain refinancing of the loan, the bank needs to assess the applicant as creditworthy. Thus, the applicant must be able to repay the loan. In most cases it is necessary to document regular incomes and not to have a record in the register of debtors.
An applicant for loan refinancing or mortgage refinancing has the possibility to use the so-called loan refinancing calculators on the Internet. These refinancing calculators offer both independent websites and banks themselves to help the applicant set up the most advantageous refinancing.
When to use refinancing loans?
If the debtor finds himself in a situation where the monthly payment becomes a heavy burden, it is appropriate to consider just refinancing the loan.
The most common reasons for refinancing a mortgage or loan are changing interest rates, offering a better rate or ending the fixation period for mortgages. What was previously a favorable loan for the family budget can currently be an overpriced burden. By refinancing the loan it is possible to get a lower interest rate and now banks also offer various bonuses.
Unlike a quick loan or other consumer loan solution, refinancing is an easy and long-term helper.
Bank houses offer not only refinancing non-purpose loans, but also refinancing mortgages. By refinancing the mortgage, it will be repaid early through a new mortgage, which the client can obtain under significantly more favorable conditions.
The situation on the Czech mortgage market is constantly changing, and therefore it is possible to save a lot by refinancing the mortgage. It is possible to refinance a classic mortgage loan for housing as well as an American mortgage.
Together with the mortgage, the client also arranges a fixation period (guaranteed period when the interest rate will not change). When the fixation is nearing its end, it can transfer the mortgage to another bank with a more favorable offer and interest rate. Refinance mortgage before the end of fixation can not. The client can then prepare the mortgage before fixation for transfer after the fixation.
What does a refinancing applicant have to fulfill?
In order to be successful in refinancing a loan or mortgage, the refinancing applicant must fulfill certain conditions:
- have good payment history in its history
- have provable regular income
- two identity cards (identity card and eg passport)
- Bank account
It is also necessary to have all documents regarding the current loan or mortgage with you to approve the refinancing of the loan.
Applicants for refinancing with execution or poor payment discipline have little chance of success.
Even if all these conditions are met, it may not be certain that the bank will approve refinancing. The bank has the last word in approving refinancing. Also, some banks do not allow refinancing of non-bank loans. Each bank has its own specific rules.
Comparison of refinancing providers
As mentioned above, both banks and non-bank companies (including companies offering peer-to-peer loans, the best known being the Best bank loan ) can provide refinancing. Before negotiating refinancing, it makes sense to use the comparison, use the refinancing calculator and get an overview of the market situation. Most providers have a non-binding refinancing calculator online. The applicant will thus see what conditions, interest and repayment period await him / her if he / she agrees with the given refinancing provider.
The table shows the most frequent refinancing providers and their current offers.
Refinancing a loan may not always be more advantageous than the original loan. The refinancing applicant should carefully study the contract before signing to avoid hidden charges and other interest.
Currently, some providers offer to refinance loans or mortgages free of charge, but there are still providers that can arrange refinancing for a fee.
Is loan refinancing the same as loan consolidation?
Often, the refinancing of the loan and the consolidation of the loan are confused. In both cases, the client’s debt is transferred to another bank, which usually offers a more advantageous loan.
However, there is a fundamental difference in the total number of loans transferred. Refinancing is provided for a single loan only. Consolidation applies to multiple loans (classic loan, mortgage, credit card debt,…).