When we start to take a critical look at our finances, things can get a little messy, to put it lightly. This is doubly the case if we owe money or have any debts. Now, let me be clear – there is nothing inherently wrong with borrowing money or taking out loans. It is a fairly necessary part of our adult lives, so it is important for us to remember that
That being said, though, there is a point where it gets to be too much. If you reach that point, it may be time to consider trying something known as refinancing. It might sound like a difficult concept or something hard to handle, but once we learn more about it, it can definitely seem much more manageable. If you are curious to learn more about what refinancing is, how it works, and whether it is worth it, continue reading this article.
I will do my best to shed light on this topic, as I think it is quite important to learn about. That is especially true given all of the current events we are seeing right now. In particular, the rising rates of inflation are concerning for those of us who are planning to save for our retirements. So, changing up terms on our loans or other debts can be a real benefit.
What is Refinancing?
As you can probably imagine, this is the biggest question I am looking to answer today in this article. To start off, you could look at this article about refinancing to get some base line information and background details to help you understand the context of what I am covering. The main idea here though is to take a previous credit agreement that you have and adjust the terms of it, be it changing creditors or through another method.
So, like I said, it is pretty simple at its core. Of course, the goal is to get a more favorable set of terms than the pre-existing ones. Ideally, that will entail a lowered interest rate or a better payment schedule. The changes made will largely depend on both you and your lender.
When is it a Good Idea?
Now, I will be honest in saying that it is a bit difficult to provide a definitive answer on this. You see, as I did mention, there are a few reasons why someone might want to start this process. The climate in which you do so, though, will likely depend on what your goal for the adjustments to your credit agreement.
So, for example, if your main priority is to lower your interest rate, you will probably want to try refinancing during a time where the interest rates across the country (or across the world, if you are looking at global lenders) are significantly lower than when you first borrowed money. If that is what you are aiming to do, be sure to track interest rates so that you can get the best new agreement possible.
However, if you are mainly looking to change the repayment plan, there is no clear, cut and dry answer to this question. Rather, simply try to initiate the process when you believe that your creditor will be willing to adjust things. That is the crux of this, of course – you can not really refinance without their permission and agreement, as it replaces the previous contract you had with a new one on the new terms.
How Does it Work?
Admittedly, this is where things start to get a bit more complex. After all, it is not like we can just send a quick text to our lender and magically end up with a refinancing deal. It typically is a lot more involved than that.
Now, if you work with a creditor such as the one on this page, https://refinansiere.net/, you may find that there is an online portal. However, that is not always the case. So, I would recommend that you inquire with whoever you are working with to get more details on how to initiate the process. It can be intimidating, but do not let it scare you off! It will be worth it in the end.
Generally speaking, all that is required at first is approaching your lender or a new one if that is what you are more interested in at the moment. You ask them about potential new terms and see if they are willing to work with you. It just requires a bit of gumption to get yourself going.
Types of Refinancing
This should probably not shock you if you are at all familiar with any types of finance, but there are several different types of refinancing out there that we can consider. Follow along for a fairly comprehensive list. Just know that there are other options out there as well, and if you do not like any that I mention, simply ask your creditor about other selections.
Rate and Term
This is the type that most people are familiar with if they have either refinanced in the past or have done some light research on the topic. It is a fairly simple process, involving paying off the previous loan with a new one that is taken out with the new terms. So, it is probably the easiest to renegotiate if that is something you are concerned about.
For those of us who have several different credit accounts open, such as multiple loans and credit cards, this might be an option. It is when you use a new loan, usually with a new lender, and use it to pay off several other debts that you have. Thus, all of your debt is consolidated into one account, with one interest rate.
Now, while it is tempting to do this purely to make paying bills simpler, it should be noted that it is usually a good idea to hold off on this unless you will be getting a significantly lower interest rate. Otherwise, it could result in going into more debt very quickly. Just be cautious, as you should be with anything that can impact financial health.
This type is generally for smaller sums of money, so it may not be right for everyone. That being said, it can be valuable for anyone looking to pay off small amounts of a debt and change the interest rate that way. Essentially, it lets you pay down a portion of what you owe so that you can have a lower loan to value ratio.
This option is for anyone who has a secured loan. That means that there is some form of collateral for the amount that you borrowed. If your collateral has gained in value since the beginning of the agreement, it can allow you to change the terms of the contract while still retaining that ownership of the item.
Is Refinancing Worth it?
So, this is the final question I will address today in this article, and I think it is a very important one to consider. While there are plenty of good reasons to consider refinancing, is it something that we should really decide to do, or more of a marketing gimmick for lenders? I am inclined to believe the former and let me explain why.
As I am sure you can imagine, there are plenty of pros to doing this with a loan or credit agreement. For example, you can end up with lower monthly payments. It is worth noting that many people end up refinancing their mortgage (a home loan), meaning that this payment could be reduced. That can be very impactful for some people and their families.
In addition to that, you might be able to change an interest rate that was adjustable into a fixed one. This gives a greater sense of stability for you and can allow you to add more to your savings account each month, if you play your cards right. This should probably be a priority for many people looking to refinance.
If you are having a moment of financial need, doing this process can also result in you getting a cash amount. In many cases this can be lifesaving, especially given the atmosphere that we have been in for the past few years. Even a dollar can make or break us, so this might be a reason to give it a try.
Finally, it can give you the opportunity to shorten the term of your repayment plan. Now, lenders create these with the intent to collect on the interest for the full term of the loan. That is why there are often fees associated with paying the amount off too early. You can avoid some of this by refinancing.
As you can see, there are many potential benefits from doing this process. There are a few drawbacks as well, but they are not that bad. Mostly, there are potentials for the length of your repayment period being reset, meaning you have to “start over again” in some ways.
Additionally, if the interest rates are to go down again, but you ended up with that fixed interest rate, you may be stuck paying more unless you refinance again. However, this is not extremely likely to happen, so do keep that in mind. Overall, I would say that there are probably more pros than cons to trying this out. If you are stuck with a lot of debts or are paying an interest rate that is way too high given our current climate, consider looking into refinancing that credit agreement.