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Refinancing your loan: The pros and cons

  • Highlights

  • Refinancing helps you change the loan’s tenor and pay lower interest

  • It can result in lower EMIs and increased cash flow

  • Know the related costs before refinancing your loan

  • Your income stability affects the refinancing process

Repaying your loan in a timely fashion is a responsibility that you are sure to take seriously, as defaulting or late payment has various negative effects. From a dropping credit score to paying EMI bounce charges and penal interest, the penalty of late payment is costly on all accounts. So, if you are in the cycle of loan repayment, refinancing can often be a handy solution.

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By refinancing your existing loan, you can not only get a new loan agreement with better terms, but you also get more time to pay off your debt. Here’s a list of pros and cons you must keep in mind before considering refinancing your loan.

Pros of refinancing

1. You can change the type of the loan

Refinancing your loan gives you the opportunity to adjust the terms to suit your needs better. For example, if you have a loan with a high floating interest rate, you can change it to a fixed rate that works better for your budget.

Alternatively, with a Bajaj Finserv Personal Loan for Debt Consolidation, you can merge all your loans into one and simplify your debt management. Low interest rates and money in bank in 24 hours makes the loan affordable and quick.

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2. You can pay lower EMIs

When you choose to refinance your loan, you have already paid a certain amount of it as part of your current loan. So, the amount of loan to be refinanced is already much less than the original amount. Therefore, your new EMIs will be a lot lesser than what you were paying before.

3. You can adjust your loan repayment tenor

With refinancing, you can either increase your loan tenor or decrease it, depending on your financial situation. For example, if you have a home loan with a 10-year tenor, you can increase this to 20 years if the EMIs are becoming a burden on your income. If you are in a better financial position than you were at the time you first applied for the home loan, you can decrease the tenor to five years and wrap up the debt quicker. This way, you will be able to reduce your total interest obligation too.

4. You can get a lower interest rate

Lower interest is one of the biggest advantages of refinancing a loan. If you find that the interest rate being offered by your lender is much higher than that offered by another lender, don’t hesitate to make the switch. Your new loan terms will not only decrease your overall interest cost, but also bring down your EMIs.

If you already have a home loan, you can transfer the balance with Bajaj Finserv at an attractive interest rate. A home loan balance transfer is a smart way to refinance your existing home loan in an easy, a quick and a hassle-free way.

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Cons of refinancing

1. Your income matters

An existing loan is not the only criteria to be eligible for refinancing. There are other aspects lenders will look at such as your credit history and your income before agreeing to refinance your loan. A bad credit score, a drop in your salary or losing your job since you applied for the original loan will not be looked upon kindly by your new lender, who may use it as grounds for rejection.

2. Cost of refinancing

This is one of the major hurdles you will face while choosing to refinance your current loan. While making your decision, you must know there are several costs that need to be considered such as the cost to close your original loan. If you are looking to refinance a home loan, for example, you will have to incur the cost of a home appraisal, a credit report fee and an application fee, among others, which you shouldn’t blindside you.

So, consider all these factors before you refinance your loan and pay attention to when in the loan’s tenor or repayment cycle you plan on refinancing. If you refinance in the first half of the tenor, the benefits can outweigh the additional cost. Make sure to compute all this to ensure you have a positive experience.

The content of this document is meant merely for information purposes. The personal loan features mentioned in this article are subject to updation, completion, revision, verification and the same may change materially based on policy revisions. For more details, please visit our Personal Loan terms and conditions page here.

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