HOW DOES REFINANCING WORK?

Definition. Refinancing is a secured loan with the intent of availing a new loan from another lender to pay off an existing one. This comes in different forms such as car refinancing or real estate refinancing. The most common reasons why borrowers availed this type of is are (1) to get the benefit of a lower rate of interest and (2) To avail a top-up on the original loan amount. However, many were not really educated about this type of loan and its benefits. Thus, I am writing the top 3 reasons why a borrower should consider availing of a refinancing.

Here we take a look at three compelling reasons for a refinance:

1. Interest rates. This is the most common reason for shifting the loan to a new lender. If an individual, for instance, is paying higher interest on an existing loan than that offered by another lender, he would naturally be tempted to go for a new loan that brings down his total interest cost.

A declining interest rate scenario also leads to several people opting to refinance loan. It is common knowledge that most home loans are floating rate loans, which means they are linked to overall macro interest rate movements. Not all lenders reduce the interest they charge on their loans when the general interest rates in the economy fall. Some lenders reduce their rates after a lag and some do not reduce the rates as much as the base rate declines.

2. Save cost. Loan customers may be in any of these two scenarios. They may be paying a high floating interest rate and therefore are likely to see value in moving to a fixed loan rate. Alternatively, they may be stuck with a fixed loan at a higher rate.

True, the individual may have to incur some charges for pre-closing his loan and getting his loan refinanced from another lender, but those charges are likely to be negligible compared to the savings he will be able to get during the remaining tenure of the loan.

3. Additional capital. Along with loan refinancing, customers also have an option of taking incremental funding. However, you should opt for a top-up of your loan from another lender only if you are getting the benefit of lower rates, otherwise try to get it from your existing lender as that would be easier and you also won't have to incur charges for getting the loan refinanced. Should you plan to switch your loan to avail of the 'top-up' option, I would advise you to approach your existing bank for a top-up plan, in case the interest rates are similar. If your loan repayment track record is good, as well as the value of the property, has appreciated, there is a good chance that the existing lender would consider your request for a top-up.

What's Next. If you this is something that you are interested to avail. Start your online loan application today and enjoy our simple 3-step application process with flexible and comfortable payment terms to fuel your dreams and reach your business goals. It’s time to grow your business, get started with your online business loan application by answering our Online Loan Assessment Form or consulting our Loan Consultant thru our FB Page.