Getting an instant cash loan is extremely easy now a days, with the advancement in information and technology. The dependence on loans to finance a home, vehicle, study and every possible luxury in life has gone up. In fact, you hardly find a person without any type of credit in their name. Personal loans have emerged in this scenario as the go-to source for emergencies owing to the qualities of instant approvals and flexible usage. But, in the changing credit market, you might find that certain new schemes are better than your original loan. In such a case, you can opt for refinancing.
What is refinancing?
Refinancing is when you avail a new loan to pay off your old loan. This way is beneficial only if you get an interest rate that is lower than the current one or a tenure that is longer. The intent is to save money on monthly basis with lower EMIs and lesser processing fee. Also, with refinancing, you can close your previous loan and also get a higher loan amount.
The obvious question is how to go about with the refinancing of your personal loan.
Steps to refinance an instant personal loan-
- Check the credit rating – The Credit score is perhaps the most important aspect to consider. You will be eligible for a lesser interest rate and a better repayment tenure only if you have a good to excellent credit score. Also, multiple hard pulls by different lenders will have a negative effect on your credit score.
- Compare loans – The idea is to get the best that the market can offer. So, do not shy away from comparing loans. Check all aspects of the loan from different financial institutions before deciding on the one that best suits your requirements.
- Calculate refinancing cost – There are processing fees that are applicable to your loan amount. So, look at the new loan in its totality, taking into consideration the processing fee, the monthly instalments payable and the tenure.
- Apply for a new loan – Once you are convinced that a particular loan from a particular institute is best for you, go ahead and apply for the same. Keeping in mind the EMIs, interest rate and tenure.
- Pay the loan and ensure that it is closed – You can choose to receive the new loan amount in your account and then go ahead and close the old loan. Optionally, you can ask your new lender to directly pay the old lender, in which case, the payments should reflect in your accounts within a week. Do a thorough follow-up to ensure that the old loan has been closed and a report of the closure is submitted to the credit bureau.
Is refinancing advisable?
Well, it can be done if you are looking to free up cash in order to manage an unexpected monthly expense. However, in the long run, refinancing of a personal loan might actually cost you more. Before embarking on this journey of refinancing your old loan, a thorough analysis of loans, interest rate, tenure and monthly payments is advised.
Overall, it is suggested to focus on repaying the current personal loan in a prudent manner than to look at refinancing. Refinancing will simply prolong the tenure of a personal loan and is not necessarily the easiest way out of debt.