When downloading the appliance, make a good calculation of whether it is worth it and prepare for the paperwork.
The motives for refinancing old loans with new ones are different. Usually you want to save on interest or reduce your monthly payment on a new loan. Also, people want to combine multiple loans into one to make their repayment more transparent.
Today, when interest rates on loans are at a minimum, many people are resolving to refinance older, more expensive loans to new ones. It’s not always worth it.
When refinancing a consumer loan, you should notice several factors.
One of them is the time when you repay it. If you replace your old loan with a new one very soon, it may not pay off. At the beginning of the repayment, most of the repayment consists of interest and a smaller part of the repayment of principal. When you transfer the loan, you will pay interest again. With a small interest rate difference between the old and the new loan, you might not pay off the transfer.
You should also note the amount of refinanced loan. According to the law, the repayment of the consumer loan up to 10 thousand dollars is free of charge. If you carry a higher loan on a fee of 1% or half a percent of its volume, depending on when you repay it before it ends, which can be tens or hundreds of dollars.
Thousands can be saved
Let’s look at a model example where a person took a consumer loan of 10,000 2 years ago, at an interest rate of 10% per annum for a maturity of 8 years. The monthly installment would be 151 dollars. Overall, he would have paid $ 4,567 more for the loan than he had borrowed.
Today (after 2 years of repayment) you would like to transfer the rest of the loan to another lender, while not wanting to extend the repayment period. What would be the interest and how much would he save on the transmission on a monthly, yearly and overall basis after repayment of the loan? There will be no early payment fee.
In two years, a person would pay 1832 dollars out of a 10,000 interest loan (cumulative) and only 1810 dollars would be deprived of the principal. The balance of the loan would be $ 8190.
If he wanted to borrow this amount today, when interest rates had already fallen by almost half, he would have saved several thousand. The cheapest one would be to refinance this loan at lender bank with an interest rate of 3.5% per annum. The monthly installment would be reduced to $ 126 and the loan would only be paid by $ 901, which is $ 3666 less than it would have paid in the original bank.
Of course, not every applicant can get a favorable interest rate of 3.5%. In addition, the bank also wants to open an account and actively use it. Other lender have interest on this loan from 5 to 7%, which is a more realistic rate. Even so, one would save by transferring credit. For example, lender would receive 5.5% interest with a monthly installment of $ 133, and would repay the loan by $ 1444, which is $ 3123 less than the original loan.
Basic steps in consumer credit transfer
- Make a list of motives why you want to refinance the loan
- Choose a new bank where you want to transfer the loan
- Get a calculation at your bank or on the web to see if the transfer is worth it
- Find out the limits of the new lender on the number of refinanced loans
- You apply for a loan and provide the bank with all receipts on the earnings and balances of the old loans
- Once the loan has been approved, apply for early repayment at the original bank
- New bank or you send money from new loan to old lender
- You tell the bank the use of money if the new loan is purpose-built