Personal loans are great in that the money can be used for any reason you want. Many people secure these types of loans, pay them off on time, and find themselves in a better financial position. Once in a while, the idea of a personal loan refinance comes to mind. Why refinance this type of loan? Here are four common reasons.
1. Locking In a Lower Interest Rate
One of the things that happens as you remit the installment payments on time is that your credit score improves. With that is the possibility of being able to refinance the remaining debt and lock in a lower rate of interest. If that’s true for you at present, it never hurts to see what type of rate you can receive.
Keep in mind that even with a lower interest rate, it may not be in your best interest to refinance. Take into consideration any fees, charges, and penalties that you could incur by making this move. If they tend to offset any gains you would get with the lower interest rate, keeping things as they are may be the best bet.
2. Changes in Your Income
What would happen if you were no longer bringing home as much money as before? Continuing to pay the same installment payment may be difficult. In fact, it could put so much strain on the household budget that you come dangerously close to being late with the payments.
Instead of allowing things to get to that point, look into refinancing the personal loan. If it would be possible to extend the term and lower the amount of the monthly payments, any stress on the budget is alleviated. You also don’t have to worry about being unable to make a payment for one month. That in turn helps protect your credit score.
3. You’d Like a Shorter Term
Maybe things are getting better for you in the form of more money coming in each month. When that’s the case, it never hurts to think about putting some of that additional money toward settling the loan. By refinancing for a shorter term, you get to pay less interest over time.
If your credit score has improved since first securing the loan, a combination of a shorter term with a lower interest rate could translate into significant savings.
4. Combining Several Debts
If you have several debts, maybe across 2 or 3 credit cards in addition to a personal loan, and you desire to combine them into 1 loan, then refinancing is the best option. By merging all your loans, you will have to pay just 1 regular repayment that will help you handle your available funds better. Also, you can save on administration fees and interest.
Refinancing can lower your interest rates, based on the types of debts that you’re merging. For instance, if you are refinancing to combine your personal loans, home mortgage, and credit card bills, then you can get the benefit of lower interest rates. However, if you are refinancing other types of debts like car loans then you wouldn’t benefit from decreased interest rate.
5. Part of a Debt Reorganization Strategy
You’re in a position now to consider reorganizing all of your debt. In this scenario, the point of refinancing is to secure the funding needed to bundle credit cards and similar debt in with the balance owed on the loan. This strategy allows you to pay off those other debts and have the one installment payment to make each month.
Along with making the budget simpler to manage, this approach could save money. If the interest rate on the refinanced loan is lower than the rates that applied to those other debts, you’ll end up paying less to eventually settle everything that you owe.
Would refinancing a personal loan be right for you? Talk with an agent who has experience with all types of Alberta loans and discuss what you have in mind. It won’t take long to determine what benefits you would receive using this approach and how long it would take to work out the details.