Any day you can have an emergency, an unforeseen situation, or even an investment or travel opportunity. To solve all of these emergencies, you may need to take on too much debt, so you may have to refinance. So, can you refinance a personal loan? What does it consist of?
If you are currently paying a loan, but you need an extra to solve an urgent matter, it does not matter if it is medical, legal, or, to take advantage of an investment opportunity in a good business, your best option is that on that same loan they lend you extra cash.
That is the best definition of refinancing.
It is about the extension, renewal, and debt refinancing. This additional loan is usually under the same conditions as the original.
By having credits (payroll or personal) with a bank or financial institution, you can extend your current credit line, so you will pay off what you owe and the rest you will use for whatever you need or want. It’s certainly a great option.
You must be punctual in your payments
This is the main condition to access it. If so, it is practically approved and under the same or better conditions than those of your original loan: same term, interest rate, etc.
If you have a good track record, your petition will likely be approved. To do this, you must contact the institution with whom you have the financing.
Once approved, the money will be deposited into your payroll or debit account, if applicable.
In some cases, taking this option allows you to reduce your monthly, weekly, or fortnightly payments by increasing the time of your current debt.
This new amount will help you pay your debt and the excess money can be used for other needs. In this way, you can save money and achieve your financial goals, pay less interest, start a business plan, or do any other purpose. This is refinancing.
When you have a loan via payroll and you request to extend it, the approval possibilities are greater.
Types of refinancing
Another type of credit renewal that also has to do with lower interest rates and reduced costs is mortgage loans, but this one can be for other types of credit and consists in changing institutions after a certain time to reduce interest payments, amounts, and terms.
In some institutions this way of refinancing credits has the following classification:
- Constant: After communicating by phone to find out if you have an available offer, you should go to the branch of the entity with which you have the credit to request a folio, which will formalize the procedure and also allow you to collect the amount.
- Massive: If in your first contact by phone they indicate that you have a new loan available and they provide a folio, you must present it at the branch of the institution so that they can download the contract and thus you can collect the amount at the bank where you receive your payroll.
In both cases, the process usually begins by telephone and the bank or institution will evaluate the applications before approving these new credits.
- You must first qualify for a new personal loan.
- You should consider refinancing costs such as interest, new fees, etc.
- Try to cancel your current loan.
- Make sure your old loan is already closed to avoid additional fees.
- Start financing the new loan.
Usually not paying a loan or paying it with delays will cost a lot to solve, especially due to the accumulation of interest rates and commissions.
Generally, dismissal or resignation, change of employment, retirement, death, disorganization of personal finances are the main reasons for not fulfilling these types of obligations.
For example, in order not to fall into default due to a change of employment, you must notify the entity with whom you have the financing about the new bank account from where they can deduct the payment to avoid delays.
If the non-payment is due to death or accident that leads to disability, some institutions offer life insurance to pay off the debt or restructure the term of the loans. There is even insurance that covers unemployment. Everything will depend on the clauses of your contract. Sometimes hiring this type of insurance is mandatory.
When non-payment occurs, various banking institutions resort to methods to recover loans such as making calls, sending correspondence, in addition to reporting the debtor in the Credit Bureaus.
Keep your information updated with the entity that grants you the financing to avoid delays and misunderstandings.
Remember that credit renewal will allow you to achieve the goals you set for yourself, such as:
It allows you to pay yourself credit cards, loans with other institutions, etc., and also have a surplus for what you need. Don’t let these obligations overwhelm you, as leaving things as they are will only make your situation worse.
There are indeed no magic recipes, but neither is there a problem so serious that it has no way out.
Have cash for an unforeseen event
If you have taken a loan before but an emergency arises, you can request a refinance to meet that unforeseen event.
Achieve your goals
You can expand the lent funds to meet your goals in less time, such as having your own business.
Shorten the time of your debts
If you find yourself in a better situation, you can eliminate debt in one go.
Not generating bad credit history
Many times over-indebted users resort to consolidation, which consists of a single institution attracting all these obligations so that you worry about paying a single bank.
However, this decision will be a bad sign on your credit history.
For everything to go as you want, it is important that before accepting a personal loan’s refinance you know exactly the commissions, interest rates, terms of the new agreement and evaluate your ability to pay it back.
Refinancing a personal loan can help you pass difficult moments that require extra cash, but it could also mean the beginnings of an endless debt cycle if you don’t have it all calculated.