Saving money is something that’s on pretty much everyone’s minds right now, and it’s really no wonder that this is the case. Eggs are seven dollars, getting fast food is forty dollars, and let’s not even talk about gas prices. That’s just in the United States – across the world, things aren’t really looking much better.
Because of this (amongst other things, obviously), folks are pinching every penny that they can. Now, we’re seeing this extend even to our old credit agreements and debts – refinancing is getting more popular than ever. The question is, then: does it really help people save money?
That’s what I’m looking to tackle today. Spoiler alert, though, it can help you do just that. Don’t worry – I’ll be explaining why along the way. Just make sure to stick around!
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What Does it Mean to Refinance a Loan?
The refinancing process is a fairly simple one, at least on paper. You put in an application for a new loan and you use those funds to pay off the previous one, with the intention that the new contract offers you a better deal overall. Lower interest rates or smaller monthly payment amounts are just two of the many possible outcomes, although they are typically what borrowers aim for.
Now, you do not have to work with your original lender, but that is an option. If they’re not willing to work with you, though, you can also look externally. It may not be the most ideal situation for some people to switch lenders, but sometimes its necessary in order to get a contract that is more favorable for you as a borrower.
How Does it Work?
The first step is pretty much always to submit your new application for the refinancing loan. Luckily, though, it’s going to be rather similar to the one you did for the initial contract, so you shouldn’t have too much of a hard time gathering the necessary documentation and paperwork. Once that’s complete, there’s a chance you’ll have a long wait period on your hands.
Because of how popular refinancing has become, it means that a lot of people are going for it at the same time. While frustrating, it can unfortunately lead to longer waiting periods for paperwork processing. You may not even know that you’ve been rejected for weeks, which can be quite stressful.
One way to mitigate this, at least a little bit, is to apply to several different lenders that you are interested in. You could even look outside of your own country to spare penger, since there is a chance that those lenders will be less flooded with applications. Not a guarantee, of course, but at least worth a try.
Really, you can take your time while shopping around for different lenders. As a borrower, you’ve got some flexibility there since you don’t have to lock into any credit agreement within a certain amount of time. So, don’t be afraid to mull it over for a while.
Once you’ve done the applications and you’ve gotten approved by one lender or another, it’ll be time to sort out your new contract. Read over the proposal as best you can and see if you’re going to be getting a lower interest rate, a more manageable monthly payment, or even both. If they’re not willing to give you at least some of what you asked for, it may be time to just go to one of the other creditors that you applied for.
Can it Really Save You Money?
Now, let’s tackle the elephant in the room – is this truly a viable method of saving yourself money in the long term? Some people may be hesitant to say yes because there are some fees involved with opening new loans and paying off old debts with them. However, if you don’t look at it just in the immediate sense, you actually are going to be able to save yourself some cash.
How does that work, though? Well, as you can probably guess, it all comes back to interest rates. A big stipulation that I’d like to note here is that you’ll probably only really be saving anything substantial if you are able to negotiate a lower interest rate than the one that you started out with.
That’s the most impactful thing on how expensive a loan is over time, after all, so it makes sense that it’s the real cincher here. So, just be sure to really emphasize that this is your goal in refinancing during the application period if you are aiming to save yourself money. It can make a huge difference.
By reducing the percentage that you’re charged just for having the debt in the first place, you’re making it less expensive over time. So, even if you do have to pay a small fee for closing out your old debt earlier than intended, it’ll pay off eventually. You may even notice that your monthly payments are lower as well!
Is there a Catch?
Before you go thinking that this is way too good to be true, don’t worry – there are a few downsides to this process that sort of ground it in reality rather than a fantasy dreamland. The biggest one is that depending on the new contract, you may end up extending the length of your credit agreement. This can be frustrating, of course, but it’s not the end of the world.
Additionally, the long processing times can put a real wrench in your plans to save yourself some cash quickly. If you’re trying to immediately lower your payments, you might need to account for a long application process in your budget for the time being. Additionally, you may not get approved in the first place, which can be a big blow.
However, if that does happen, you can always try to submit another application at a later date. Don’t give up hope if things aren’t working out at first – through some trial and error and a bit of perseverance, you’ll eventually be able to find a lender that suits your needs and is happy to work with you.
So, while there are some little caveats here and there for refinancing, as a whole it is a tool that we can use to save ourselves some money. Just make sure that you remember to stick to your budget along the way, and set aside what you may have been spending on those monthly bills into your savings account if you can afford to do so! It’ll help later down the line.
