The Merits and Demerits of Personal Loan Refinance

In India, loans are a part of existence. And of all loans, personal loans are the most popular. Not for no reason, though. A personal loan offers you unmatched convenience, high loan amount, flexible methods of repayment, long and short repayment terms, and a host of other features. However, non-payment of personal loan dues online or offline can land a borrower in legal trouble.

But do you know that you can not only get better terms but also save more money, than your preferred lender's personal loan interest calculator shows you, just by refinancing your personal loan?

Yes, you read that right. Online personal loan refinancing is a possibility and is often considered as the best way to reduce your financial burden.

Read on to discover why personal loan refinancing is a good thing and what you stand to lose by opting for an online personal loan refinance.

The Merits of Personal Loan Refinancing

Changing Loan Type Becomes Easy

By refinancing an online personal loan, you can change its type from floating to fixed, or vice versa. Changing the interest type may help you save money. Remember to use the personal loan interest calculator before refinancing, though.

The EMIs May Reduce Drastically

While applying for an online personal loan refinance, the chances are high that you have already paid a few EMIs. Hence, your refinanced loan's EMIs will be calculated on the excess amount and not on the full loan amount. This would make your new EMIs decline substantially and ensure higher savings.

You May Change the Loan Term

It is a no brainer that the faster you repay your loan, the sooner you can be debt-free. But high EMIs make it impossible to pay more than what you can afford to. Thankfully, by applying for an online personal loan refinance, you can increase or decrease the loan term. Generally, borrowers prefer to reduce the loan term while keeping their monthly outgo constant while availing a refinance. This enables them to settle off the loan earlier, become debt-free, and increase their credit score.

The Demerits of Personal Loan Refinancing

Chances of Rejection are Higher

Some borrowers think about refinancing a personal loan online when their credit score drops from the level it was when they applied for the existing loan. However, having a loan is just one of the several criteria lenders consider while evaluating your loan application. If there is a considerable decline in your credit score or income level during the term, the lender may reject the loan refinance application. Before applying for the refinance, check your actual savings on a personal loan interest calculator.

The Initial Costs are High

Applying for an online personal loan is easy. But, before you start reaping the benefits of lower EMIs, you have to pay a few charges:

• You have to pay prepayment account closure charges to close the existing loan prematurely.

• The new loan may come with an origination fee, which may go up to 8% of your loan amount.

• The lender may charge an application fee, credit report fee, and taxes.

All of these can increase your actual cost of the loan application.

Losing Out on Loyalty Benefits

Sometimes, you might choose a different lender while considering the online personal loan refinance. But doing so can disrupt your relationship with the lender. Often, lenders offer exclusive discounts and other loyalty benefits to customers who stay loyal. By opting for a refinance, your relationship with the lender can be at stake.

Conclusion

Applying for an online personal loan refinance makes sense when your loan amount is high, and EMIs are much higher than the new loan. However, if after checking the personal loan interest calculator, you find that the cost of the refinance exceeds the intended savings, it is wise not to apply for a new loan. Instead, you may negotiate with your existing lender and request them to be more considerate.

I am Rahul Kumar, a professional Financial Analyst. I have done MBA in finance and worked in various finance organisations. I have five years of working experience and I am also fond of writing about personal financing.