Is It a Right Time to Refinance Your Personal Loan?

Personal loans are very commonly borrowed by individuals. However, refinancing is a bit different.

So, what do we mean by refinancing personal loans?

Refinancing a personal loan refers to taking an additional loan just like some other, but where you use the funds to pay off the EMIs of the past-borrowed personal loan. Hence, this will help you pay off your personal loan of the past that you have started paying off but fear a lack of funds.

When you plan to refinance a personal loan, you may do so for benefits like getting the newer loan at better interest rates. Overall, you can benefit by obtaining this new loan with additional perks, so that the overall costs are reduced for you.

However, there also exist certain disadvantages to refinancing a personal loan, making it important to carefully decide whether or not to go ahead with it.

When to Go with Refinancing a Personal Loan?

The following are some scenarios where you can consider going ahead with the option of refinancing your personal loan:

When You Have a Good Credit Score

A good, high credit score will let you get an additional loan at lower interest rates. There can be significant savings when you pay off the earlier loan EMIs with loan amount borrowed now but at lower interest rates. If this is the case, and you’re assured that there will be considerable amount of savings, you can choose to move forward with the plan to refinancing the loan.

When You Need to Reduce Your EMIs

Equated Monthly Instalments refer to the amount you need to pay every month as the monthly repayment amount against the loan borrowed. If the EMIs are seemingly too high for you to pay off, you can consider to refinance the personal loan. Look for options that can get you loans at competitive rates of interest so as to make the refinancing work for you.

When You Are Seeking to Pay Off Your Loan Quickly

Sometimes, we need to get off a debt as soon as possible. This can be for some financial priorities or to be stress-free as well. If you are able to refinance the loan, lower the interest rate, or choose a shorter loan repayment period, refinancing can be a suitable way go debt-free. The burden of paying the freshly taken loan may be there but not as high as it was with the personal loan taken in first place.

You may also like "Why is Linking Your Mobile Number to Your Driving License Important?"

When to Avoid Refinancing a Personal Loan?

There can be situations where it is better to avoid refinancing a personal loan:

When You Are Close to Paying-off the Loan Entirely

There is no perfect time to get the refinancing done or avoid it. However, it is suggested that you go with refinancing personal loans when you are in the first half of the repayment period/tenure. If you know that you are just a few months away from closing off the loan, it is better to avoid taking a fresh loan which will again require EMI payments for months.

When the Interest Rates Seem to be Rising

It is appropriate to take a loan when it can offer you lower interest rates. If refinancing the loan further enhances the rate, there is no point taking another greater burden just for temporary relief.

When the Overall Payment/Fee is Higher

Every loan comes with many fees or payments to be paid/made. When applying for the refinancing of a personal loan, you should study all related costs. Calculate and analyse the overall loss or profit. If there is an overall, it is no way wise to get the loan refinanced. The payments or penalties and fees associated with the new loan should not be so high to make your earnings get overweighed by your losses/cost payments.

Don't miss this! "How to Apply for a Personal Loan Without PAN Card?"

Final Thoughts

The option to getting a personal loan refinanced should be applied only when it is worthy enough to be done that way. If it is instead bringing you further debt burden or high costs and repayment amounts, better avoid refinancing the loan and instead go as you’ve been heading forward so far. There are, anyways, many other ways to collect funds if there is a major issue repaying that personal loan.

Recent article "What Are Your Legal Rights After Defaulting on A Personal Loan?"

More Latest Articles

Upcoming Bank Holidays

Find More Useful Links