Have you taken out several expensive consumer loans? If so, you are probably struggling to take better control of your finances.
Fortunately, finding a good refinancing deal can help you collect separate debts into a single one, thus saving on interest, fees, and other costs. While mortgage refinancing has been popular for years, consumer loan refinancing is becoming more popular by the minute.
In case you’re considering such an option, the information below will teach you the basics.
The need for consumer loan refinancing has increased in recent times, as such a step provides lower interest rates, a better finance overview, and fewer fees. By accumulating more consumer loans, borrowers acquire better control of their finances. Consequently, they will be dealing with only one creditor. In view of savings, borrowers can save money not only through lower interest rates but from fewer fees as well.
Moreover, the cost savings are more significant in the case of smaller consumer loans. These credit products have much higher effective interest rates than larger borrowed sums. The real cause of expensiveness comes from three factors.
Firstly, the term and establishment fees on small consumer loans have a strong influence on the effective interest rate. This also happens because of the fact that these credit products have a shorter repayment period. Find out more about the calculation of effective interest rates.
In general, small consumer loans have higher nominal interest rates in comparison to larger ones. Typical establishment fees are NOK 900, whereas ongoing costs tend to amount to about NOK 600 annually. Normal effective interest on small consumer loans cost between 25% and 35%. Nevertheless, such interest rates on microloans can reach several hundred percent.
Refinancing is a wise step when having huge debts from several small consumer loans, which cannot be repaid with income over a few months. In contrast, refinancing a very small loan of several thousand kroner is quite meaningless, as you can easily repay the sum through your income in a few months. Refinancing becomes absolutely important when owing larger money sums, especially from several smaller loans.
The exact amount that one can save depends on the number of consumer credits and the cost of each. It’s not surprising for those who have high debt costs to reduce them in half through refinancing. It’s an effective method of easing the financial burden.
How to find the Best Deal?
Looking at refinancing can be done in the same way as looking at mobile subscriptions. Regarding such products and services, people usually change suppliers upon finding a cheaper alternative. Individuals who have a consumer loan that will keep running for a while should check the interest rates offered by their competitors.
Borrowers can easily get informed on the remaining costs of their existing loan and compare them to the refinancing offers they get. An increasing number of banks offer unsecured credits for refinancing without any establishment fee. Consequently, you only require a better interest rate offer for refinancing to make financial sense. See this URL, https://www.bankrate.com/loans/personal-loans/unsecured-loans-definition/, for a definition of an unsecured loan.
The best refinancing deal can be easily found by obtaining as many offers as possible. It’s worth mentioning that the applications are without any obligations and require no payments, irrespective of whether borrowers apply through a financial agent or directly to the bank. There are a couple of things to keep in mind when starting the application process.
For instance, individuals should look for banks that offer refinancing without charging any setup fees. Additionally, you should look for banks with low term fees. Another alternative would be using a co-borrower, who can be a spouse or cohabitant. Fortunately, there is huge competition in the market for refinancing.
Increased competition has a positive effect on consumers in view of imposing no establishment fees. The interest in forbrukslån refinansiering is steadily increasing as well. For example, several banks like Bank Norwegian and Santander have zero establishment fees. Also, there are banks like Svea Finans and Bank2 offering refinancing for borrowers with payment remarks. The interest rates on refinancing are usually better than those for consumer loans.
The objective of refinancing is mainly about cutting total costs. Many individuals also opt for this alternative for the purpose of having a livable financial life. Hence, paying off refinanced debt over a longer time period is considered more relevant compared to quick repayment, which pays off the most. Nevertheless, getting a longer period of repayment depends on the type of loan and debt that you’ll be refinancing.
Nowadays, there are new rules related to the repayment period on consumer loans. For instance, the new loan cannot run any longer than the existing credit agreement. Thus, if six years are left on your credit with the longest repayment period, your new loan has to be no longer than seven years. The only exception occurs if all the credit products are less mature than five years.
If your current debt from three or four small loans is expected to be repaid within five years, the bank will approve more than five years as a repayment term. The maximum repayment period that a borrower can get is fifteen years.
Why should you refinance?
The reasons why a person should refinance are numerous. The main ones include lower interest rates, improved credit scores, and fewer fees. Refinancing usually provides borrowers with lower interest rates, as banks tend to provide lower rates to individuals borrowing higher money amounts. The interest costs on individual debts, whether on consumer loans or credit card debt, are higher than the total interest expenses on a single loan.
As a result, if a borrower adds up all his/her unsecured debt and chooses refinancing that covers all the debt, he/she will be offered a lower interest on it. Let’s assume that you have credit card debt of NOK 30,000, consumer loan debt of NOK 35,000, and you have recently purchased a new kitchen for NOK 25,000 in installments.
Furthermore, the entire debt amounts to NOK 90,000 in unsecured debt. Anyhow, if you choose to refinance to repay all this debt, you’ll be provided with lower interest. Regarding the credit score, it’s not fixed but constantly changing. Therefore, there’s a high likelihood that your score has improved since the time you took out the current loan/s you are paying. Consequently, you can apply for an interest that’s quite lower.
By making regular payments, your credit score is likely to improve. The same is true if you have received a higher income. Your marital status is also an important factor in the process, as it’s easier to pay down a larger money sum if there are two of you. Age is capable of making a difference as well. Unless you have defaulted on your debt over the years, your credit score will automatically improve.
Borrowers are strongly advised to check their credit scores before the bank gets the chance to assess their financial situation. Ultimately, refinancing is a good option because of the chance to reduce fees and other costs. The larger the number of debt items, the larger the fees. For instance, if you have three debt items, you’ll be required to pay three different installment fees.
While it might seem like a small money amount, as separate fees aren’t very high, when added together, the amount becomes significant. If you decide to refinance, you can pay only one installment fee. Given the credit score is the crucial factor in getting a favorable interest rate, borrowers should do their best to improve it. They should pay off small debts, pay any cases of debt collection, and try to raise their income.
To sum up
Instead of fearing your financial future, why not refinance and get control over your debts?