When you have a loan, especially if it is medium or long term, the conditions in which you find yourself can change, making you need some liquidity, and this is when refinancing can play an important role.
At the end of 2019, there were around 59.7 million loans granted to individuals, based on data from the Annual Panorama of Financial Inclusion 2020 published by the National Banking and Securities Commission. This represented an increase of 3.2% compared to the same period in 2018, according to this same study.
Refinancing occurs when a person reviews the conditions of their credit and looks for a new agreement, either in the interest rate, the payment dates or other original terms in which it was made.
Sometimes you can also unify two or more credits and access a certain amount of cash that this product grants.
It has become very common in the last few decades to see individuals and even couples or families looking for loan options to refinance a home, and the main reason for that seems to be the deterioration of the family’s economy which has caused serious problems on the paying capacity.
Financial institutions offer different ways to refinance a loan, it all depends on which one will best suit your needs.
One of the main options that you can find is that at the time of refinancing the debt, the previous credit is paid and the difference is given to you in cash.
This amount may vary depending on how old your credit is and how much you still have to cover, but it is a good way to obtain liquidity quickly since the entire procedure takes around 24 hours.
Another alternative is to unify several credits into one, in this way your account statement will be much easier to read and you can have much more clarity about how much you pay monthly.
Consider that the requirements and processes vary depending on the financial institution with which you are going to carry out the refinancing, however, some of the steps to follow are the ones below:
Normally, this type of transaction is usually much faster than the approval of a normal loan, since the institution has your credit history.
The amount of the new loan may vary according to your income, the amount of the original credit and what you have already paid previously.
Although you can access a refinancing for any type of credit, there are some situations in which it suits you to opt for one while in others, would not be recommended.
Mortgages are long-term loans, that is, with a view to paying them off in 15 or 20 years. During that time interest rates may vary. In recent years the trend has almost always been downward.
In February 2020, the average rate for mortgage loans was 10.35% while in February 2021 it closed at 10.42%, a minimal variation. However, in October 2020, the interest was below 10%.
It may seem like a very small variation, but if you got your credit a few years ago, the average rate was close to 12 percent. This means that you would be paying more interest and after several years, that amount of money can be significant.
If you want to refinance your mortgage loan, consider that it should have a better interest rate. If it is about reducing the monthly payment at the expense of increasing the term, it is not so recommended.
Credit conditions such as interest rates and Total Annual Cost vary depending on the institution with which you applied for the loan.
In this case, as with a mortgage loan, you should consider that the refinancing reduces the interest rate or the term. However, keep in mind that some car loans have a penalty for early payments.
The interests of credit or departmental cards are usually very high, so if you do not have control of your expenses, the debt can grow above your ability to pay.
The ideal is to look for a loan that has a better rate and a controlled monthly payment, so that you can cancel the card debt and reduce the interest you pay.
Before looking for a credit card, check what each one offers and what are the costs you have to pay: annuity, collection costs, replacement and Total Annual Cost.
The National Commission for the Defense of Financial Services Users has a comparison of the different cards offered by financial institutions.
By refinancing, you will be able to maintain the same monthly payment, but you will obtain an immediate cash flow, since the request takes around 24 hours to be authorized.
To grant loans or access refinancing, the process is usually much simplified in the institutions that offer payroll loans, since they create agreements with the workers’ dependencies.
Also, if you already have a good payment history with the institution, your application is much more likely to be approved.
Accessing refinancing will allow you to achieve some of the goals you set for yourself or face some unforeseen event. However, before looking for a refinance, analyze some points: