Just like with a mortgage, you have the option to refinance a personal loan. However, this practice is not encouraged by banks. So, is refinancing a personal loan really beneficial for you?
You can take out a personal loan for various reasons: a wedding, home renovations, travel, etc. This type of loan is generally easy to obtain, although it often comes with relatively high interest rates. Before contacting your bank, first check if a renovation loan, a home improvement loan, or an auto loan might be more cost-effective for you.
Declining Interest Rates
Interest rates are constantly fluctuating. Sometimes they go down, sometimes up, and you might find yourself in a situation where your loan has higher interest rates than the market offers. Is it then worth renegotiating your loan to take advantage of a better rate?
Firstly, you should know that not all financial institutions allow this for personal loans. Moreover, even if your bank accepts, they might penalize you significantly. As a result, you could end up paying more if you decide to refinance your loan. Therefore, we strongly advise you to gather all necessary information in advance and do your calculations carefully.
Early Repayment
Have you won the lottery or received unexpected financial resources? Early repayment of a personal loan is entirely possible. This can be beneficial to avoid paying the remaining due interests. However, financial institutions will charge you early termination fees that should not exceed 1% of the remaining balance.
Refinancing by Necessity
If you’re having difficulties repaying your loan, you can ask your bank to refinance it. This way, your monthly payments can be reduced. Note, however, that such a procedure results in extending the repayment period of the loan as well as an increase in interest rates.
