Friday, December 6, 2019

When and Why Should I Refinance My Loans?

Financial lenders typically try to structure a loan repayment plan in terms that are compatible with the borrower’s income and additional financial responsibilities. However, sometimes circumstances change, including the loss of employment or competing financial needs. 

This can lead to the borrower unintentionally missing payments or sending late payments, which can damage the person’s credit score. This and other reasons below may suggest the need to try and refinance any loans you may be struggling to pay back.

When to Refinance

The most common reason to refinance a loan is when your bills increase or your income decreases, making it difficult to meet your monthly loan payment. Rather than falling behind in your payment schedule and risking your credit score, ask about your eligibility to refinance the loan. 

The interest rate may change, and it may take longer to pay off the loan, but you will have a better chance to maintain a positive credit rating.

Another reason to refinance a loan is to free up some of your monthly loan payments for an upcoming special event. College graduation, getting married, reaching a work-related or personal milestone, and retirement is some of the popular events for which borrowers sometimes need extra cash to pay for related expenses. 

Lower monthly loan payment will help to finance those plans so you don’t have to take out another loan.

Why You Should Refinance

In addition to the reasons stated above of protecting your credit standing and having more cash flow each month for other expenses, you may want to refinance to get a better interest rate than the one you currently have on the loan. 

With a cash out refinance loan, you’ll get paid back the difference between the increased value of your home or the reduced payments from your old rates. Sometimes a special offer will appear, and you might want to take advantage of it by refinancing your loan to get smaller payments or a quicker payoff date.

Another incentive to refinance your loan could be the benefits that come with doing business at a certain bank or financial institution. 

By switching your loan to a different lender, you may be entitled to certain perks or better rates for other accounts through the new lending entity, such as a higher-interest-bearing savings account or a lower interest rate on a home mortgage if you are thinking of buying a home.

By refinancing your loan, you can avoid financial problems and possibly enhance your credit score as well as taking advantage of better offers related to interest or other accounts. Refinancing too often can hurt your credit rating, so be careful to reorganize your loan terms infrequently and for good reasons.

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