Refinance my personal loan, pay lower installments or pay it back earlier?
When we request a loan we have many doubts, we need the money but at the same time we want to get the best conditions and many times we don’t have the necessary information.
In that situation, sometimes we accept conditions that we are not aware of that will cost us to assume, and suddenly meeting the deadlines is no longer so simple, so there comes a time when we need to say stop! Let’s rethink the terms of our loan to get better ones.
What does “refinance a loan” mean?
When we ask for a loan, we usually feel a great relief that we can finally take care of the expenses that we had pending and that made us feel drowned. It is the perfect time to catch up with the pending expenses, however, returning the loan according to the installments set is sometimes complicated and becomes a new economic burden. That is when we need a refinancing of our personal loan to defer payment or reduce payments.
Refinancing is the renegotiation of a loan according to an extension of the term, lower fees and new interest rates that allow us to repay the loan more comfortably.
However, is it entirely positive to refinance your loan? Is it better to extend it by paying smaller fees but more interest, or higher fees with the interests initially agreed?
This is one of the most common debates in which people get lost deciding what is more economical when paying off your loan. The truth is that the fact that a loan is more expensive or cheaper depends on different factors, and one of them is time, which makes it more expensive.
Factors that determine the price of a loan
There are several factors that depend on whether a loan is more expensive or less expensive, we show you which:
The requested amount
Obviously, the amount requested largely determines the price of the loan, however, the money we request has little to do with what we finally ended up paying. While it is true that online microcredits, being a very low amount, end up inflating to a large extent, if you request a loan for an amount of 30,000 you know that the money you are going to have to pay back is much higher too, since you will need more Time to return it.
As advice: Be cautious when asking for an amount, ask for just what you really need and do not overdo it, since that money that you request “on the margin” you will pay much more expensive than not having it at all.
The entity to which you apply for the loan
The issuer of the loan establishes the conditions, the loans and first, if it accepts or rejects your request. Therefore, it is important to carry out research work on which entities offer better conditions. There is always an entity that favors in some factor that benefits you or that is more comfortable for your pocket, so it is important to take some time in this step.
As advice: It is true that some entity can benefit you, but do not rely on finding extremely beneficial conditions: They do not exist or are cheating. Be very aware of that and you will avoid falling into scams and scams.
The interest rates of your loan
Another very influential factor in the price of your loan is undoubtedly the famous interest rates. The most common is that you find the application of fixed rates to your loan, however, there are entities that, as in the application for mortgages, also give you the opportunity to apply variable rates for the payment of your loans.
Normally, interest rates are high in these types of financial products, so it is always better to hire the lowest rates and if possible at a fixed rate, since you will not be exposed to market variations.
As a tip: As in the previous section, it is important to check the rates applied in the market very well, although we recommend that you choose the lowest one, if it is noticeably lower than the rest of the competition, do not trust.
The loan repayment term
Time, as we said at the beginning of the section, is one of the main factors that defines the price of your loan. You should always keep in mind that as much as you reduce your loan installments, if you pay it for a longer time they are charging you some interest, that is, extra money, which you would save if you pay it back as soon as possible .
As a tip: One of the reasons that it is increasingly difficult to repay a loan is refinancing. When you refinance a loan, instead of saving the installments, what you do is raise the final price of your loan, since the money you save with each installment is more than charged in the payment of the interest rates that rise with each refinancing. Be very aware of this and your ability to pay each month.
As a final conclusion, nobody better than you to know which conditions are the most favorable, do not get carried away by a reduction of fees just because they seem more comfortable, if you know that in the long run the loan extension will mean a greater disbursement. It is even more advisable to pay it in advance, as long as you have proof that you are not penalized for the advance payment).