Do not take a loan with too long a repayment period
Indeed, this way you can significantly reduce the amount of monthly installments, but it comes at a price. The longer you repay a loan, the more it will cost you. Refinancing with too long a loan is worth considering only if the current monthly installments are unaffordable for you.
Don’t forget about the fees on the new loan
In addition to the interest on it, the new loan comes with some additional fees such as a fee for analysis and evaluation, for example. If they are deducted from the amount you will receive in your account, do not forget to include them in the amount of the loan for which you will apply. Otherwise, you may find yourself in an awkward situation because you will not have enough funds to repay all your current debts. In any case, these additional costs must be taken into account when comparing the price of different loans.
Exercise your right to early repayment
Every consumer has the right to early repayment, which is guaranteed by the European Consumer Credit Directive.
The institutions whom you want to pay before the deadlines specified in the contract, of course, will not be very happy with this fact. Therefore, they are likely to try to slow down the process or create some difficulties for you. If this happens, be sure to seek your rights! Or you can give them a chance to keep you as a customer by asking for an offer to refinance loans with them.
Don’t lose money on insurance
Some of your current loans may have insurance included. If it is paid in monthly installments, there is no problem – with the early repayment of the loan there will be no need to pay these installments. But if you have paid all the insurance at once in the beginning (usually it is included in the loan amount), in case of early repayment of the loan you will lose the amount for the insurance paid for the remaining term. Combining this with the fact that you will most likely pay for insurance on the refinanced loan, it may turn out that you have paid 2 insurances for the same period. To avoid this unpleasant development, ask your bank or insurer to refund your money in proportion to the remaining period.
Do not refinance an interest-free loan
If you have taken a promotional interest-free loan (with an annual percentage rate of charge of 0%) for the purchase of goods on installment and you have more outstanding installments, it is better to deduct this obligation from the refinancing accounts. Given that you do not have interest on it, there is simply no way to make its payment more profitable.
Be careful with the mortgage
Be sure to check if the refinancing offer is not tied to mortgaging your home! If this is the case, there is a real risk of losing your home in the event of any difficulty with your monthly mortgage payments.
Carefully consider the time to repay your current loans
It is best to start with refinancing after you have made the monthly installments on all your obligations. In this way you will have enough time to distribute and send the received funds to all institutions to which you are indebted. As already mentioned, they may try to slow down the process. It is important for the bank transfer to explicitly indicate the reference number of the loan you want to repay early. Carefully monitor whether the credit institution uses the funds received to repay the loan and whether it has initiated the early repayment procedure. This is important because if the early repayment procedure has not been completed by the time your next monthly installment matures, you will be charged interest for the next period according to the loan repayment plan. Therefore, it is a good idea to provide a small additional amount, more than necessary for refinancing, which will save you in case of possible discrepancies in deadlines. You may need to sign additional documents, including an annex to the loan agreement. It is a good idea to ask the credit institution for a loan statement to be reassured that everything is fine.
Do not reach for a new loan 1 month after refinancing your debts
This would completely nullify all the good you have done for your finances so far. The refinancing is done once and aims to ease your monthly budget. If you use this free resource to take out a new loan in the coming months, there is a risk of worsening your financial situation. Especially if you pay off your credit card debt when refinancing, don’t reach for it again. Try to deal with a debit card in the future.