Get to know more about Refinancing Loans

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Get to know more about Refinancing Loans

Advantages and Disadvantages of Refinancing Loans

What is a Refinancing Loan? What are the benefits?

      Refinancing is usually every financial institution has a basis in determining the maximum limit of debtor’s installments, which is equal to 30% of their income, either individually or collectively (in pairs). However, in reality, the portion of debt installments sometimes exceeds the recommended limit. So that in the end, many people get into debt and are unable to pay it.

 

The inability to pay their debts resulted in many people being “chased” by debt collectors. Therefore, those who are unable to pay their debts will try to find a solution, one of the solutions is to do refinancing.

 

 

But, Do You Know What is Refinancing?

      Refinancing or what is commonly referred to as credit refinancing occurs when a debtor, be it a business or an individual, makes revisions to his loan. By refinancing it means that you can pay off existing loans so you can apply for new loans.

 

Most people usually choose to refinance credit in exchange for a loan with a better interest rate so that the monthly payment will decrease and then save money with interest and other fees. Debtors usually also prefer to refinance by resetting the loan agreement when interest rates have changed substantially. Thus, it can create potential savings on debt payments from the new agreement.

 

Over time many loan repayments with refinancing or refinancing options. Examples such as mortgage loans, car loans to personal loans. This refinancing is expected to improve your financial condition going forward.

How Refinancing Works

     With refinancing, of course, it will involve reviewing a person’s credit terms starting from the business to his credit status. This loan is considered for credit refinancing, including for mortgage loans, car loans to personal loans. Business investors can also refinance mortgage loans on commercial properties.

 

As we discussed above a little bit, this refinancing occurs when a person or business changes interest rates, the schedule for repayments and the terms of the existing agreements.

 

When refinancing means replacing an existing loan with a new loan by paying off the old loan debt. New loans should have better requirements or features than before in order to increase their finances. However, the details of the refinancing process depend on the type of loan with the same process.

  • Previously had a loan and then wanted to increase that loan in several ways
  • Look for a lender and find one that offers better loan terms than previous loans
  • Then make an application for the next loan
  • If the loan is approved, the new loan will be used to pay off the old debt in full
  • You can make new loan payments until the loan is paid off and go back to doing it

The most important thing and must be avoided from refinancing is to reduce the use of debt such as with a credit card because this credit card has a relatively high risk if there is a default, it could be that all the assets you have will be confiscated. However, if you use the credit card for productive needs, for example, to build a business where later payment of the debt will use the benefits of the business, then it’s okay to use a credit card.

Therefore, make sure to make loans for productive needs, not for consumptive needs.

 

Types of Refinancing

In general, there are 3 types of refinancing that can be selected according to your needs.

  • Cash in refinancing – Paying part of debt with cash so that the value of the debt is smaller.
  • Cash out refinancing – Withdrawing additional cash when the collateral price increases for other purposes.
  • Rate and term refinancing – This is the most common type of refinancing, which covers old debt with new debt with lower interest rates.

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Benefits of Refinancing

Refinancing is not just digging the hole cover the hole, Pins. It turns out that there are many benefits that Pins can get from this financing method.

 

1. Avoid the black notes Banks

This is one of the reasons Pins use refinancing. If Pins are in a certain situation and are unable to repay the loan, then the credit record for Pins recorded by Bank Indonesia will decline or even fall into the black notes of Bank Indonesia. If you have this, Pins will find it difficult to apply for a mortgage or other loan.

 

2. Change the terms and conditions of the loan

Refinancing is not just about not being able to pay off a loan, you know, Pins! There are also those who choose to pay off old loans and create new ones if they want to pay off the loan early. As we know, some loans, such as mortgages, have a minimum tenor. If Pins want to pay off the loan earlier than the agreed tenor, Pins will be subject to a fine. Now, with refinancing, Pins can reset that – both speeding up and extending the tenor!

 

3. Get additional funds

In some situations, Pins can use refinancing to raise additional funds. For example, after the KPR road for 10 years, Pins plans to carry out renovations. Pins can apply for refinancing with a slightly larger amount to pay off the remaining mortgage and get funds to carry out the renovation.

 

4. Change the type of loan

Apart from modifying the terms and conditions of the loan, Pins can also change the type of loan. For example, if Pins have a conventional mortgage and feel the floating rate is too high, Pins can try to apply for refinancing to convert them into installments with fixed rate interest. Of course this depends on the terms and conditions of the bank and their refinancing program.

 

5. Reduce monthly payments

In line with the benefits above, Pins can apply for refinancing with specific strategic objectives. For example, Pins can get refinancing assistance with a looser tenor with fixed interest, of course this will significantly reduce your monthly payments!

 

 

Credit refinancing loss

In addition to the many benefits that can be obtained from credit refinancing, there are also some disadvantages to be aware of.

 

1. Transaction fees

For those of you who don’t know, refinancing can be very expensive. There is no exact price regarding the refinancing fee, depending on the individual conditions. However, the fees that must be paid by the debtor usually range from 3 percent to 6 percent of the total value of the new debt proposed. These costs are for filing purposes, administration, inspection fees, and debt closing costs. Debt with a large value such as a mortgage can cost even more.

 

2. Higher interest costs

The main purpose of credit refinancing is to get a smaller loan interest so that the debt burden is also reduced. However, this is not always the case with refinancing. You can get stuck paying a higher interest rate. For example, when you extend the debt maturity period. Even though you have more time to repay debt, it turns out that the amount of interest that must be paid is even greater.

 

3. Missed out on various advantages

Some types of debt usually offer certain benefits or benefits that will be lost if you decide to refinance. For example, on a mortgage loan, as long as the installment process is still ongoing, the credit provider will provide insurance. However, if the mortgage is paid off because you submitted another debt with a lower interest rate, the insurance will automatically disappear.

 

 

How do I refinance?

      Actually, refinancing is not much different from when you are looking for a new creditor to apply for debt. If you want to do rate and term refinancing, then you have to make sure that this new creditor is much more profitable than the old one, so that your burden in paying off debts will be much lower.

      At least, find three fund providers who are willing to provide loans to you and what are the advantages they offer if you want to borrow funds from them. Before you sign this new agreement, make sure you have read all the terms and conditions.

 

That’s everything there is to understand about credit refinancing. Think carefully whether refinancing is the right step before making a decision. Also consider which type of refinancing is the most profitable and in accordance with your current financial condition.

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