Sometimes it is very important to refinance your loan with a lower interest rate. It is considered one of the most complex ways to manage your finance. But if you are well equipped with all the knowledge related to a personal loan, you can go for the refinancing option. But first, we need to know what it is and why you should go for the refinancing procedure.
What is Refinancing in a Personal Loan?
Refinancing is nothing but replacing your existing loan with a whole new one that offers a lower interest rate or better terms and conditions, or both. So, if you have come across a better personal loan option, you can refinance it by replacing the previous one. A few factors make people refinance their loans most of the time. Here we will discuss those factors to make you understand the phenomenon in a better way.
Why Should you Refinance your Loan?
There are many reasons to refinance your loan. Some of them are discussed here.
Lower interest rate
If you have come across a personal loan with a lower interest rate with any other lender, then you can replace your previous loan with the new one. Before doing that, you must check out the best individual loan rates online to understand whether it is profitable for you or not. If you see that the new loan is beneficial in terms of interest rate, you can go for it instead of continuing with the previous one.
Change in tenure
If you feel that your loan repayment tenure is not appropriate, you can also refinance it with a new personal loan plan. It has two different possibilities. You may come across a repayment tenure which is lower than your existing loan. If you feel that a shorter period will be better to avoid prepayment charges, you can refinance. On the other hand, if you think you need some more time to repay your loan, you can also choose the longer period in the new personal loan plan. Both things are possible in this case.
Improvement in your credit score
Sometimes when you pay your EMIs on time, your credit score may improve to a great extent. So, if you feel that your credit score can give you a better personal loan, you can go for the refinancing option. In this way, you can replace the previous loan with the new one, which can be more beneficial according to your needs. That is why we always suggest our readers go for a refinancing option if they improve their credit score.
The facility of the top-up loan
If you can increase your credibility to the financial organization, then you can even have the facility of getting a top-up loan plan. It is nothing but a feature in which you can apply for an instant increase in the amount if you get into an emergency. Sometimes it is a useful option if you have to fund something instantly. So, the refinancing option can give you a top-up loan plan if you have better credibility with the organization regarding repayment.
Change in terms and conditions
If you ever discovered that a particular personal loan has better terms and conditions as per your requirement, then you can choose the refinancing option as well. Sometimes the terms and conditions are not very effective, but still, we take up a personal loan for an emergency. That is why this refinancing option is there where you can upgrade your loan requirement along with better terms and conditions by replacing it with a new one. You need to make sure that you read all the conditions carefully to avoid mishaps during your loan tenure.
Adding or deleting a Co-applicant
If you want to add or delete a co-applicant from your loan account, you can also go for refinancing. If you have taken up a joint loan earlier, you can delete the person’s name in your new personal loan plan in the refinancing procedure. On the other hand, if you have taken a loan individually and now want to add a co-applicant, you can also refinance it by adding the name of that particular person. In both cases, you should read the rule book of the personal loan carefully and then only decide about refinancing.
These are the basic factors that drive people most of the time to go for refinancing.
It would help if you made sure that you read about the best personal loan rates before getting into this process.