Refinancing Your Loan
The typical American accumulates a bewildering array of debt. Some of it you might regret, some of it you might think was justified, some of it you might even have forgotten - but all of it is sitting there, waiting to be fed with your interest payments. Refinancing can't make that debt vanish, but it can tame it somewhat, and it can rescue you from some of the bad deals that you might have signed up to.
Refinancing, as a term, is most commonly used to describe mortgages, but in fact all types of debt can be refinanced. On some of the other pages of this site, you'll be able to find information on refinancing a mortgage specifically, but here I'll be concentrating on refinancing more broadly, and about the aspects of it that are common to all forms of refinance package.
The basic nature of a refinance deal is that it lets you change the way you look at your debts so that they are right for you. You can reduce or increase the amount you are paying each month, to fit in with your ability to pay in the short term and the long term. Two ways to do this are by changing the term of the debt, and by switching between interest-only and gradual-repayment schemes.
Thinking about repayment times
One of the aspects of refinancing that can help you is the ability to adjust the time you want to take in paying off your debt. When you first went into debt, you probably ended up with a variety of loans - some of them needing to be paid off within 18 months, others over five years, and so on and so forth. You likely let yourself be guided by the default repayment times of whatever you were borrowing at the time.
That's not the best way to go about it. Depending on your personal circumstances, you might be better off with shorter or with longer repayment times. Refinance your debt, and you'll get the opportunity to move it to a repayment timescale that suits you - not one that just happened to suit the original lender.
The right period of repayment is something that nobody can tell you. A longer period will reduce the amount that you need to pay each month. But because the principal sits there longer, you will need to make more interest payments - in other words, you will be paying more interest overall, making the debt more expensive to pay off.
A shorter repayment period will put more strain on your immediate finances, but it will also work out cheaper overall. Refinance to a short-period loan, and you'll pay off your debt more quickly, reducing the total amount of interest that you have to pay on it.
The point of all this is that the repayment period, just as much as the headline interest rate, determines how much you'll be paying to your lender to look after your debt. You should be looking to find the right balance for your own situation - a repayment period long enough that you don't have problems meeting your obligation to your lender each month, but short enough that you don't still find yourself saddled with debt decades from now. It's not an easy balance to strike, but refinancing lets you at least take a shot at getting it right.
Repaying the principal
Similar to the above is another option in refinancing - when do you pay off the principal, the amount that you initially borrowed. Refinancing a loan will let you move between the different choices here. Each of the ways of repaying the principal is good for some situations and bad for others, and so when you use refinancing to select a different option, you can put yourself in a better financial situation.
You can have a 'balloon' arrangement. This means that you do not pay off the priciple as part of your monthly payments. Instead it sits there, and will suddenly be demanded in full at the end of the loan term. Clearly this type of loan has a trap for the unwary, in that you face big problems if, at the end of the term, you don't have the money to pay it off. But balloon arrangements are great as parts of a bigger financial arrangement, such as where the principal will be repaid by the proceeds from something else. An example of this arrangement is the 'bridging loan', used by people who buy their new house before selling their old one, and need a short-term loan in the intervening period to cover the gap in their assets. There is no point in paying to reduce the principal, because this will be covered by the proceeds from sale of the first house.
So, there are situations where refinancing can reduce your immediate payments, leaving the principal to be repaid at a later date. If you had let yourself into the position of arranging a bridging loan where you were paying to reduce the principal as well as making interest payments, it would make good sense to refinance this to an interest-only balloon arrangement.
The converse is also true. If you have a loan on which you are paying interest only, and you don't have a particular reason for this, you would often be well advised to refinance it to a loan allowing gradual repayment of the principal month by month. Why? Because it takes great discipline to prepare to repay a large lump sum in one go, likely requiring you to save up for months or years in advance. It is much simpler to repay the principal as you go along, avoiding the temptation to skip preparations to repay it.
In short, there are good reasons to have an interest-only loan, and there are good reasons to have a gradual repayment loan. Refinancing enables you to move from one situation to the other, so that everybody can have the right loan for themself.
What we have to offer
We offer you the opportunity to get all of the information that you need. It's very simple to just fill out our form, and we will do the rest. You will receive all of the information on refinancing for your local area. You can search for lenders for free and get the best possible quote. The information you submit is secured, private and confidential and you will never receive spam mail from us.
We will help you get the best rates from up to four lenders. There are no obligations, no credit checks, and no social security number required. It takes just one minute to fill out the secure online form, up to four of the best lenders in your area will contact you and you can then choose the best lender at your convenience without the hassle of having to do all the research for each individual lender. We do that work for you.
