In banking terminology, the term “loan refinancing” is widespread. Financial market experts assess it as a promising tool to simplify the repayment of existing loans and streamline payments on regular payments. In this article, we will understand what refinancing is and whether it is profitable.
The Essence of Refinancing Bank Loans
The refinancing service boils down to combining payments on previously taken loan obligations with a lower interest rate, or reducing the number of monthly payments for one loan with a higher rate.
Bank customers under such a program can shorten or increase repayment periods, change the loan amount, and take advantage of lower interest rates. Thus, the amount of monthly payments are reduced, the period of their payments is increased and other beneficial advantages are achieved.
How Does the Principle of Refinancing Work?
This concept should not be confused with the restructuring service. In the event of a restructuring, actions are taken aimed at changing credit conditions under a previously signed agreement.
In the case of refinancing, a new loan agreement is drawn up and a new amount of borrowed funds is issued. Naturally, the conditions will be more acceptable than with open credit programs.
How it works in practice
The basis of refinancing is the principle of changing conditions and interest rates on loans. If the borrower pays out certain amounts for several open loans every month, he has to calculate the size of the regular payment for each of the programs, control the repayment terms, and spend time on online payments or on visits to the bank branch.
In contrast to these conditions, refinancing programs allow you to make one monthly payment with a single interest rate and a stable amount of a regular monthly installment.
Thus, refinancing looks like replacing existing loan obligations with new lending conditions, taking into account the changing market circumstances, and the conditions of the lender, as well as replacing the lender.
Simply put, refinancing is the receipt of a new loan in order to repay previous obligations or obtain certain benefits:
- the decrease in monthly loan installments;
- reduction of the crediting period;
- repayment of debt on early terms;
- raising new funds for urgent needs.
Moreover, the borrower can use the refinancing service in his banking institution, where he is already serviced, and in any other bank. This circumstance allows you to choose the most favorable conditions, and choose a program that would best meet your own expectations and financial capabilities.
When you need to refinance a loan
We will tell you by the example of Wells Fargo Bank. Most often, borrowers resort to refinancing services when they already have several loans, and the conditions for them are very different. In order to bring the monthly payments amount, maturity, and other characteristics of the loan to order and a single value, customers can use the refinancing conditions. In addition, the reason for participating in such a program may be:
- the decrease in the discount rate by the Central Bank reflected in the total cost of credit products;
- in the presence of foreign currency loans and exchange rate changes in the interbank market;
- if necessary, to attract additional financial resources;
- to reduce the amount of debt.
You can also use the refinancing service in order to early pay off the debt in another bank on more favorable terms.
Benefits of a Refinancing Program
Wells Fargo Bank’s refinancing program differs from the mortgage, consumer loans, and other loan products from other lenders. To verify this, we offer a look at a simple profitability calculation, showing all the benefits of refinancing.
Suppose you have different debt obligations with different conditions:
- a consumer loan of 45,000 dollars at 10.2% per annum;
- mortgage balance of 870,000 dollars with a rate of 8.75%;
- purchase of equipment on a non-cash loan in the amount of 30,000 dollars with an interest rate of 13.7% per annum.
The size of the bet is different everywhere, as well as the monthly repayment amount. Instead of such complex repayment and monthly payments, chase routing number texas offers to use a single program. Under its terms, the bank transfers to your creditors the full amount of the debt, and now you have to pay the same amount to only one bank. Moreover, such payments are accompanied by less financial burden, given the rate of 8.5%.
Thus, you can calculate the real benefits of refinancing:
- balance of debt on previously taken loans – 945,000 dollars (mortgage, non-cash, and consumer credit: 870,000 + 30,000 + 45,000 dollars);
- Wells Fargo Bank’s rate is only 8.5% instead of 8.75-13.7% on previous loans;
- taking into account the rate, the total amount of debt will be 1,025,325 dollars, including interest;
- the total overpayment will amount to 80,325 dollars per year, which is on average 7.6% cheaper than if the debt were repaid in several programs.
Real savings according to the given example would be about 9 thousand dollars. And given that some loans will have to be repaid for several years, you manage to avoid impressive overpayments at the interest rate.
Other advantages of refinancing conditions are:
- speed of response to your request and speed of contract execution;
- almost one hundred percent likelihood of approval of the application;
- minimum package of documents;
- calculation of regular payments and total overpayments on the bank’s website on an online calculator;
- early repayment option;
- monitoring of loan payments in the personal account of Internet banking.
Registration of a refinancing loan is also possible remotely in the format of online applications.
The total loan amount at Wells Fargo Bank up to 5 million dollars allows you to manipulate several loan programs and combine up to 10 loan products into one loan.
The repayment period for this program is from two years to 60 months with the possibility of early closure of debt. Moreover, repayment is carried out according to an annuity scheme with a fixed payment size.
Conditions are available to borrowers from 21 to 68 years old with a passport, and personal income tax certificate-2 and a positive decision will have to be expected no more than an hour.