Refinancing is only one of the many ways to capitalise on a personal loan. It entails paying off an existing loan by taking out a new one with more favourable terms in the way of lower interest rates or monthly payment fees than the original loan. Borrowers can do this directly with their original licensed money lender, or they can choose to work with another financing agency. Ultimately, refinancing aims to save as much money as possible or lower the monthly payments fees to be paid.
At first glance, this may technically seem like taking on more debt, but that is not the case. Although you may be taking another personal loan, using it for refinancing may actually serve to lower your debt sooner than later. If you are interested in knowing more about refinancing loans, read on to discover when it would make sense for you.
When does refinancing make sense?
1. Your credit has improved
Most personal loans are unsecured loans, which means they do not require collateral assets like cars, real estate, or other personal and valuable assets. Thus, a borrower’s creditworthiness is especially important in determining their eligibility and the interest rates on their loan. If your factors, such as your credit score or credit history, have improved since taking out your original loan, it may be best to consider refinancing.
2. There is an opportunity for fixed interest rates
If your current loan has a variable interest rate that you are worried may increase in the future, refinancing it with another personal loan with a fixed rate may help alleviate that stress. Opting for a fixed interest rate for the entire loan term allows you more control over your budget and overall financial goals.
3. A drop in interest rates for personal loans
Oftentimes, licensed money lenders may offer lowered interest rates on their loans based on competition in the market or changing benchmark interest rates. Although your credit score has not yet improved since taking out the original loan, you might still be able to qualify for a lower rate nonetheless.
4. You can afford a greater monthly payment
Another way to qualify for a lower interest rate is by taking out a new loan, albeit with a shorter term. As a result, your monthly payment will increase, but it may save you more in the long term should you be able to afford it.
5. You prefer a lower monthly payment
On the other hand, if you begin to have difficulties with your loan’s monthly payment, it would be best to refinance a personal loan with a longer payment term as it may help with your situation. The longer loan tenure generally comes with lower monthly payments; although you will be paying higher overall interest, it can still be a worthy tradeoff in the event that you need extra cash for other needs.
Conclusion
Refinancing your personal loans does not mean taking in more unnecessary debt; it is an opportunity to save as much cash as possible by lowering your interest rates or monthly payment fees. However, it first requires finding and qualifying for more favourable loans, and there are also a few issues to consider, such as prepayment penalties on the original loan. But all in all, refinancing is something that you should always consider if all factors lead to a beneficial outcome for you.
If you are searching high and low for loans from a trusted and professional lender, Orange Credit has got you covered! We are a legal and licensed money lender offering quick, flexible, and easy loans in Singapore with a fast loan approval process. With a strong focus on our customer’s priorities to provide practical solutions to their financial woes, rest assured that we will do our all to ensure you alleviate your financial concerns. For more information, contact us today.
