When you decide to refinance a loan, you are taking out a new loan to pay off one or more outstanding loans. The goal of refinancing is often that the newly negotiated loan will have more favorable terms to pay off the loan, which may include a lower interest rate and reduced monthly payment amounts, not to mention having one payment due date to remember.
Many kinds of loans can be refinanced, including student loans, credit cards, mortgages, auto loans and small business loans. A student’s financial situation may look different than a small-business owner’s, but refinancing can still have the same purpose and process.
Check out this information on why, how and when to refinance to help you make important financial decisions.
Why refinance a loan?
Typically, borrowers will refinance if they are looking to lower their interest rates, lower their monthly payment amount or to reduce what they pay over the life of the loan.
If money is tight and finding the money for your monthly payment is a challenge, refinancing may be a good option. Refinancing to a longer loan term means you’ll make payments over a longer period, which would lower monthly payments. Keep in mind that in this case the overall amount you pay would increase because you will be paying interest for a longer period.
If you’re looking to pay a loan off faster, refinancing could mean a lower loan rate, as well as the opportunity to increase your monthly payment amount to tackle debt faster. This also means paying less interest over time. If this sounds like your current situation, the faster you refinance your loan, the better. Refinancing as soon as possible will save you money in the long-term.
Another reason borrowers may look to refinance loans is to consolidate debt. For example, if a borrower has student loans in the form of both private and government loans, they may want to consolidate the debt to one lender in order to better manage and pay them off.
How to refinance a loan
Before you begin the refinancing process, carefully examine the terms of your current loan. How much are you paying in total? What is the current repayment schedule? What is your current interest rate, and what would your new interest rate be? Be sure to ask about and factor any fees associated with refinancing a loan (especially a mortgage) in to your decision and budget.
After you have all the information and know what your goal is in refinancing your loan, talk to a Verve team member about what your refinancing options are and how they can help you achieve your repayment goals. Bring all the information you’ve gathered about your current loan to your appointment.
When is best?
There isn’t a one-size-fits-all approach to refinancing your loan. Everyone’s situation is unique and should be treated that way.
One factor that you’ll want to consider is what the current rate environment is like. Interest rates are calculated based on current economic factors such as Federal Reserve raising or lowering rates. If interest rates are lowered, you may want to take advantage by refinancing, but if rates are high, you may want to wait until you can get a better rate.
If you try to refinance a loan and your interest rate doesn’t improve much or you’d like to adjust your repayment plan again, you can refinance loans as often as you want.
If you’re debating refinancing, but you aren’t sure how much money you would be saving, you can meet with a Verve team member to calculate your potential savings. Having an idea of your savings may help you decide if refinancing is worth it at that time.
If you think you need to refinance a loan, schedule an appointment with one of Verve’s loan experts. If you have any questions before you schedule an appointment, don’t hesitate to contact us at 800.448.9228.
If you want to learn more about refinancing loans, check out our blogs on refinancing your mortgage and using home equity to pay off debt.