The idea of refinancing a loan is always popular when interest rates decrease. Borrowers want a lower rate and, in some instances, want to shorten the length of their loan term. Thirty percent of those refinancing ended up with a shorter term in 2021.
Refinancing can be beneficial to your bottom line. Depending on the terms of your new loan, you can potentially optimize your cash flow and reduce your debt.
Do you have a loan that you’d like to refinance? Do you hope to negotiate better loan terms? Do you know how to refinance a loan? Stick with us as we go through this loan refinancing guide and learn some loan refinancing tips along the way.
Find Out What You Owe
Before you can refinance your loan, you have to figure out how much money you need to pay off your existing loan. That’s essentially what you’re doing with refinancing.
Knowing the exact amount needed to pay off the current loan is important because you’ll need to know the loan refinancing amount that’s necessary to be free and clear of your original loan.
In addition to the new loan amount needed, you need to check if your original lender had prepayment penalties written into the terms of the loan. If so, the penalties may outweigh the benefits of refinancing.
Do You Qualify?
To refinance a personal loan, you have to be able to qualify for a lower rate based on your credit score. If you can’t qualify for a significantly lower rate, it may not be worth it for you to refinance.
If it’s a business loan you want to refinance, you have to satisfy certain requirements to qualify. Your personal and business credit score comes into play along with your business revenue and profits and a few other items.
Learn more about refinancing a loan through the SBA 504 program. Several changes to the program expanded eligibility and reduced costs.
Shop For Rates and Terms
It pays off to do your research before settling on a lender to refinance your loan. You want to compare rates and terms from multiple lenders. The best deal is to get a lower interest rate with low fees without lengthening the loan term.
Don’t overlook your current lender especially if you have a relationship with them. They may be able to offer you a better deal in an effort to keep your business.
How to Refinance a Loan: Now You Know
Now that you know how to refinance a loan, you have to consider whether it makes sense for you and your situation. You have some questions to answer. Will you get a lower interest rate? Will your monthly payment increase or decrease with the terms of the refinancing? Compare the pros and cons and shop around for the best lender.
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