The mechanism for refinancing bank loans primarily concerns mortgage loans. There are, however, cases in which cash loans are refinanced, especially if they are taken out for quite a considerable amount.
Refinancing a cash loan involves signing a new contract with a selected bank that will repay the loan taken out in the old lending institution and the customer will get a new loan.
What is refinancing?
A bank loan once taken out does not have to be repaid on schedule in the same institution, as it can be refinanced in many cases. Refinancing is the conversion of one liability into another. The reason for this change is usually better credit terms that can be obtained from another bank.
You can’t go wrong with a loanrefinancing and consolidation, although there are some similarities between them. A consolidation loan allows you to combine several liabilities into one, and a refinancing loan to change the lender and the terms of the loan. The credit market is changing dynamically, which is why a loan taken a few months ago may not be such an attractive financial solution as before. Therefore, refinancing may be useful in this case.
How to refinance a cash loan favorably ?
If, objectively speaking, the cash loan terms are worse than those offered by another bank , you can refinance. However, this decision should not be taken too hastily. A good approach is to check a larger number of offers and analyze them carefully. The attractiveness of the refinancing loan allows the price of the liability to be repaid to be reduced.
It is not enough to check whether the new bank offers a lower interest rate on the cash loan we want to refinance. Important are any additional fees that we will have to pay in connection with the implementation of this operation. These are fees such as:
- commission for granting a refinancing loan,
- early repayment fee,
- fees related to establishing the required collateral for the new loan.
Only after calculating such fees can it be determined whether a refinancing loan really pays off for us more than a previously repaid cash loan. If refinancing doesn’t pay, it’s best not to do it at all.
On one hand, refinancing a cash loan involves premature repayment of an existing loan and a new commitment to raise money for this purpose.