When will the refinancing of loans be profitable?

A working capital loan in a company’s current account, an investment loan, and a credit card or other obligation that entails repayment of the installment on a monthly basis is a significant burden for the borrower. If he is worried that he will not be able to pay the installments on time, perhaps it is worth refinancing the loan?

Refinancing a loan will be profitable if the new bank offers the customer more favorable lending conditions than those it already has and the fees for early repayment of loans will not be too high.

What is this about?

What is this about?In practice, loan refinancing involves the transfer of a liability or liabilities to another bank, offering more favorable credit terms than existing credit institutions. It includes the repayment of a previously held liability or liabilities from money obtained by means of a new credit or loan. In practice, a refinancing loan can thus also act as a consolidation loan, special purpose loan granted to repay the client’s previous obligations.

In some cases, banks offering refinancing loans provide the opportunity to raise an additional amount of money for any loan purpose.

When to get a refinancing loan?

When to get a refinancing loan?

Before applying for a refinancing loan at the selected bank and signing the final loan agreement, the customer should consider whether such operation will be profitable for him. The perfect moment to implement it will be an increase in the amount of monthly income or repayment of previous obligations, which will reduce the monthly budget. Along with the increase in monthly income, the customer’s creditworthiness also increases, owing to which banks are willing to offer them more favorable credit terms and a shorter period for settling liabilities. In addition, the financial surpluses obtained from early repayment of liabilities can be used to pay higher loan installments if, as part of refinancing, the customer decides to shorten the loan period.

A refinancing loan will be profitable when another bank offers the borrower much more favorable credit terms, ie

  • lower credit margin affecting the interest rate, lower credit installments,
  • shorter loan repayment period with a small increase in monthly installments,
  • extra cash for any purpose.

This is the right solution to organize the payments of all your credit obligations. However, before taking a refinancing loan, you should also check how much the client will cost early repayment of the existing loans and credits.