The loan refinancing service is not so popular in Poland yet, but it is beneficial enough for us. See what refinancing an online loan is.
Refinancing – how does it work?
Credit or loan refinancing involves replacing your loan with a new one. This means that we pay back the loan that was incurred earlier with a newer loan. In technical terms, it looks like this: the bank to which we want to transfer debt repays our financial obligations to another bank in full, and we continue to repay the debt in the new bank and on new conditions.
Why should you use refinancing?
We usually decide to refinance a loan in two cases: if we want to pay a lower loan installment or if we are unable to pay back the earlier commitment. Of course, we decide to do it only in a situation where such a procedure is profitable for us, so it is worth comparing the interest rate, possible commissions, e.g. for granting a new loan and checking the loan-related fees, e.g. for an annex. Most often, we refinance a mortgage, car loan or payday loan.
Imagine the following situation: a couple of years ago took a mortgage to buy an apartment. A few years after taking the loan, one of the spouses, reviewing the current loan offers, notes that he could transfer the loan to another bank, and the new contract terms would be more favorable than the current ones. Therefore, if the new bank offers loan refinancing, it transfers its loan to the bank and signs the contract on more favorable terms. What thereby gains? Lower interest rate, and thus a lower installment. The loan term may also change and we can shorten it if the financial situation allows us. When we decide to refinance, we have the chance to save a few or several thousand zlotys.
Before making a decision on refinancing your mortgage, it is worth checking whether the current bank where you had the loan does not charge a commission related to early repayment. Bank offers are different, sometimes there are no restrictions on early repayment, but usually such a commission is not calculated after 5 years have passed since the loan was taken.
We must also take into account the fact that when deciding on a new mortgage in another bank, the entry in the land and mortgage register must also change. Changing the mortgage entry is associated with an additional fee, and above all the need to settle all formalities.
Refinancing of payday loans
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Payday loans, which we usually take online, are usually granted for a period of 30 to 60 days. Not everyone is able to repay their liability on time, so if this is the case for us, it is worth considering refinancing the loan. This is a kind of way to postpone the payment date, and allows us, above all, to avoid the unpleasant consequences of late repayment.
Refinancing of the payday loan is done in the same way as for a mortgage. Namely, the borrower is granted a loan from another company that will cover previous liabilities in the previous loan company.
If we know before the payday repayment deadline that we will not be able to pay the debt on time, let us report this fact to the company’s employee (or use the client’s platform on the website). Currently, many companies meet the needs of such people and are themselves undertaking a loan company that will refinance a previous loan.
Loan refinancing – an example
Let us explain the refinancing of a loan using specific numbers. If we took out a loan for PLN 500 for 30 days and together with interest and commission we have to pay PLN 650, then in order to apply for refinancing, we should first pay PLN 150 (interest + commission). A company that refinances an earlier loan for us, transfers PLN 500, and we have a new loan to repay with a new maturity of PLN 650.
The difference between refinancing and a consolidation loan
We often confuse refinancing a loan with a consolidation loan. Although these services appear to be very similar, there are some differences between them.
Loan consolidation involves the combination of several loans, regardless of their purpose. Very often, banks offer us additional money as part of consolidation, which increases the sum of all liabilities. Of course, we can spend the extra cash for any purpose. We wrote more about consolidation loans in the article What consolidation loan to pay payday loans? In the case of refinancing a loan, the exact amount of debt is transferred to the account of the previous financial institution, and we cannot increase the amount of our liability by receiving additional cash.
I do not want to use refinancing
It happens that we do not want to take advantage of refinancing the loan because we do not intend to explain ourselves for reasons why we are unable to pay it back. In this situation, we can on our own look for a company that will grant us a loan, thanks to which we will cover earlier obligations. We may decide to send a loan application . The application will be reviewed individually and the possibility of taking a long-term loan and installments extended over time will not be charged to our monthly budget.