How Refinancing Works

We all go through life incurring some debt to get us by. Sometimes we may even have the available funds that will not require us to borrow money. However, we could still choose to avail loans because we want to have some financial cushion for our peace of minds.

Refinancing your loan means replacing your existing loan with a new one. For some, it may sound absurd but refinancing terms are usually better than your old loan. You could get lower interest rates, shorter terms or a more beneficial method of interest computation. Since most refinancing is done by banks other than your existing one, they would try to sweeten the deal as much as possible. That’s why the terms you get refinansiering av gjeld is usually better. This will convince you to avail the new loan and discard your old one. If you do not get better terms, there is no way that you can be convinced to get payday loan, also known as forbrukslån. Why should you take the extra effort when you get absolutely nothing? So naturally you will be offered good deals.

Lower interest rates are usually the key things that will be offered to you to convince you to refinance your loan. This will determine the cost of borrowing and we always will go for the lowest cost possible. Most banks can also go for a lower interest rate because of the following reasons:

  1. Background check has already been conducted. When you first took out your loan, your existing bank has already conducted a background check for your capacity and willingness to pay. This kind of activity takes time and effort which in the business world is equal to money. So the third party who wants to refinance your loan doesn’t have to go through these efforts all over again.
  2. Appraisal has been done. Your existing bank would have assessed the property (in case of mortgage or chattel loans) beforehand to come up with the terms. So this could already have the appraised value of the property. Again, appraising properties entail cost for the banks. They either have to outsource these services or they employ an appraiser to handle this.  In this case, appraisal will no longer be necessary for the third party bank.

Banks that offer refinansiering do not incur the expenses that your existing bank has incurred when you first availed your loan. There are many costs from the banks end that they will not have to incur. So naturally they can offer better terms than your existing banks. Also, they will be able to pick out loans that they know earn regular interest income. Unlike taking on new loans that has no previous history whatsoever, these loans are considered to be less risky therefore they can offer better terms.

For the end of borrowers, refinancing can help them lower their amortization cost and total payments of interest made through the better terms that are offered. However, they still need to assess whether it is beneficial for them or not. There may be pre-termination costs associated with their old loan so they need to check with their existing banks for charges such as this. We normally don’t really look at the fine print and it could have stated a certain amount of percentage that you pay for terminating your loan before due date. If pre-termination cost is high, it is not advisable for the borrower to refinance his or her loan.

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Rachel Gillian

Rachel is a stay at home mom with two beautiful kids. She is passionate about writing informative articles.