Refinancing is a buzzword that a lot of marketing teams have caught wind of and started to inject into their various advertising campaigns across the internet. To say that it’s been annoying is an understatement, really, because often they’re just talking about it as if you can only do it for mortgages. You see, that’s just not true.
As a matter of fact, you can do it for pretty much any consumer loan so long as your lender is willing to allow you to apply. While that doesn’t mean you’ll always be approved, of course, it is at least theoretically possible most of the time. Why does that even matter, though?
Refinancing is an incredibly valuable tool for borrowers, even if many of us don’t realize it. Since it allows us to adjust previous terms for our credit agreements, we can alter all sorts of things like the interest rate or our monthly payments. So, if you’d like to know more about any of that, I’ll be explaining it further on!
One: There’s High Demand for It Right Now
If you are planning on trying to refinance your loans any time in the near future, just be aware of the fact that there are a lot of other people looking to accomplish the same thing. While this isn’t necessarily a bad thing perse, it does mean that there is a bit of a lower chance that you’ll get approved. Unfortunately, with all the “competition,” there are going to be some who are declined.
However, I wouldn’t say that it should deter you from applying. Even if you don’t get approved on your first go around, you can always try again later. As far as how else it might impact you, though, you might notice that the processing time on your application is a little bit longer than it would usually be. Thankfully, that’s mostly just an inconvenience rather than being actually detrimental to our approval odds.
Two: Some Loans Can’t be Refinanced
As unfortunate as it is, sometimes we won’t be able to find a refinancing solution that works for us that is actually available. Since the process often involves taking out a new loan to pay off your previous one(s), there’s a chance that there won’t be any creditors offering that specific type. So, it’s probably a good idea to go in knowing that you might need to be flexible about the sort of loan you end up with.
When it comes to how a refinansiere works, though, you won’t notice too much difference if this is the case. There isn’t really a rule saying you can’t refinance one credit agreement with another one, so you should still be in the clear! When in doubt, just ask an expert.
Three: Requirements are Extra Strict Right Now
Truly, the “good” news doesn’t stop coming, right? I know this is a bit of a bummer to hear, but most of the requirements that lenders are establishing for refinancing are quite strict at this time. That’s probably because of the state our economy is on a global level.
If you weren’t aware, things aren’t looking so hot at the moment economically. Most currencies are stagnating in value and despite the efforts of several governments around the world, inflation is running rampant. With that comes a raise in interest rates and a reluctance to allow borrowers to just waltz in and refinance their current debts.
What this means for us is that in order to get approved for refinancing, we’ll have to have good credit scores and a good track record of paying our bills on time. “Fair” scores certainly aren’t going to cut it most of the time, while there was a possibility of that a few years ago. I suppose it’s just one more thing that we can thank the pandemic for ruining, right?
Four: Think about Your Current Income vs. Your Debts
Admittedly, this is pretty standard for any types of credit agreements, but I wanted to touch upon it since I consider it to be quite important. Before you sign any contracts for new loans with the intent of refinancing, you should take a good hard look at your current financial situation. Can you afford the monthly payments that are going to be involved?
When you ask yourself that question, also take into consideration what your new interest rate could be. Ideally, you’re aiming to get one that’s lower, so it might take some of the pressure off. However, if you think that taking this on would end up creating more stress, it may not be the right play. There’s nothing wrong with waiting until the economy gets more stable, after all, especially if it means you won’t end up in a worse spot than before.
Five: Despite the Issues, Refinancing is Still Worth it
I know that I’ve mentioned a lot of the drawbacks here today, but I figured it was a good idea to give you the whole picture of what you may be getting yourself into if you apply to refinance a loan. Despite all of them, I still consider it to be worthwhile to at least try to go through this process. If you’re able to score a lower interest rate than the one that you started out with, it can save you a ton of money down the line.
So, even though it might seem like a real pain to go through a loan application process all over again just for this, it’ll be worth it eventually. Just remember to double and maybe even triple check your new contract to make sure you’re not getting a bad deal. It might seem kind of silly to worry about, but you’d be surprised.
Finally, don’t lose hope if your first application is rejected. You can always request a letter to inquire about the reasoning for the rejection, and you can work to improve upon whatever needs to be fixed from there!