Lending is an affordable way to get cash on your desired purchases. Banks are willing to finance the acquisition of real estate, cars, food and lend money at interest. In this case, banking institutions may not limit the solvent borrower in lending. Therefore, a situation may arise when a client has two, three or even five contracts in which you can easily get confused. And the terms of loans over time may not be as beneficial as the current offers on the market. There is a way out – this is refinancing. In this article we will tell you what a loan refinancing is, how to use it and how to arrange such a deal.
What is refinancing
Debt refinancing is the repayment of existing credit obligations at the expense of the lender’s borrowed funds by drawing up a new contract. What is it, in simple terms? This means that you can apply to any bank that has a loan refinancing program and ask them to pay off loans from other banks. Accordingly, the new loan agreement must be executed on more favorable terms. Refinancing is applied if:
- in the current offer overvalued interest rates. You can get a loan in order to save overpayment on the loan;
- to combine several contracts into one. Each bank sets its own repayment schedule, in which the dates, amounts, accounts where it is necessary to deposit money are indicated. This can be inconvenient, and an error in payment is not excluded. Therefore, it is advisable to combine all in one loan;
- reduce the monthly payment. This is possible by increasing the term of the loan;
- convenience of payment. The current lender cannot provide a properly valid form of commission-free payment. In this case, you can choose a more convenient option by issuing an agreement in another bank.
Debt refinancing is a popular banking product that is now in demand. Requirements for borrowers remain standard, as in the case of drawing up the usual consumer lending. What does refinancing mean for a bank? This is an ordinary consumer loan.
After all, a banking institution receives a client, and where the money is transferred – to a car sale transaction, as in a car loan, or to repay a debt in another bank – is not so important. Although, in fairness, it is worth noting that each line of credit or even each individual offer in a particular bank may have its own peculiarities in the requirements for the borrower.
Consider the standard requirements of banking companies:
- age from 18 to 65 years at the time of expiration of the loan. Some banks are ready to raise the maximum bar for retirees to 75 years;
- solvency. The value of the monthly payment amount must be no more than 40% of the income;
- credit history. A positive credit history is a subjective decision of the bank;
- citizenship of the Russian Federation is required;
- the place of registration or the actual location should be in the region where the bank has a branch;
- work experience of at least six months in current work.
In addition to the requirements directly to the client, banks put forward a number of conditions on loan agreements for refinancing a loan debt:
- no overdue loans on current loans;
- in the case of a consumer loan, the term of the contract shall not exceed 5 years. The maximum mortgage terms are 30 years;
- It has been at least six months since the start of the contract, and the client has made at least 6 payments.
These are standard conditions that most banks are targeting. To clarify the possibility of refinancing consumer credit in a particular bank, it is better to refer to the company’s website or to specialists.
Refinancing loans – this is something between the design of a new loan agreement and the provision of information about their loans. Therefore, the documentation package can be divided into two types.
Information about the borrower:
- copy of employment record;
- documents on income in the form of a bank or in the form of 2-NDFL, extracts from a banking institution and others.
Information on refinanced loan:
- account details for debt repayment;
- certificate of the absence of prophesied debt;
- statement of repayments for the entire loan period;
- certificate with an amount sufficient to close the contract, and payment terms.
Banks will refinance a loan only if the loan documents will be a statute of limitations no later than three days. Therefore, you need to get help just before refinancing.
How to get such a deal? Consider how banks refinance a loan, what it will need and how the borrower acts in this case.
- Choose a financial institution in which there will be refinancing. To do this, you can consider banking sites to find the most profitable offer.
- Make a request on the company website. The bank will provide a preliminary decision on the possibility of this operation.
- After approval, the application will be reviewed no later than 3 business days, you must go to those banking organizations where there are currently unsecured loans, and ask the bank to give references from the “Information on refinanced loan” section.
- The received documents with the documentation about the borrower itself are attributed to the selected bank.
- Wait until the information is verified and the company will provide a final decision on the possibility of on-lending. May take 3 business days.
- Will be sent to the department to sign a new loan agreement. Schedule, loan documents and repayment of refinanced loans are received.
- After 5 working days to receive certificates of closing contracts.
- Use the new loan on favorable terms.
The concept of “refinancing” is that a new lender repays debts, but this definition means that the client has a debt to a new bank, which he undertakes to pay.
Why such a service exists
Why should bank companies refinance loans? Indeed, in this case, the borrower receives the benefit, which automatically means that banks lose profits. Is there really no bank solidarity that would allow market participants not to apply such methods?
In fact, such an operation is beneficial to each side. This is a working method that allows you to both earn financial institutions and alleviate the credit burden on the borrower. As a rule, such a service is resorted to by those clients who, knowing that they cannot pay on a loan, are looking for alternative possibilities.
Accordingly, the banking company in which the contract is executed will not incur losses if the borrower cannot pay. Indeed, in this situation, you will have to do a lot of work, sue, demand to pay off debts, which affects the company’s reputation and also entails additional financial costs. Yes, if the contract is closed ahead of time, then the banks receive less interest, but the main profit is already included in the first 6 payments in the case of a consumer loan, therefore it is profitable.
A banking organization that refinances a loan agreement receives a new customer who will be loyal in connection with the assistance provided. Of course, you will have to pay part of the interest, but the money will pay off from further relations with the borrower.
A client who finds himself in a difficult situation gets an opportunity to ease financial pressure by making a deal on more favorable terms. In addition, the credit history in the proper quality will be saved in this way. After all, the main thing is that there should be no delays, and who repays debts for financial institutions is not so important.
What are the disadvantages
Before making a deal it is worth clarifying whether it will be really profitable. Indeed, many companies in addition to fixed assets may include additional conditions in the cost of lending, such as insurance, SMS-informing and other services.
It is also important to pay attention to the possible commissions, payment methods, access and the possibility of a personal account. After all, a loan is not just an amount and a rate, but a whole product that includes a whole list of all kinds of conditions.
I would like to mention another way to improve the conditions of the loan. Every client can use the restructuring service, if the bank agrees. The difference between refinancing and restructuring is that the first operation is performed between third parties, while restructuring is possible within a single bank.
This can save a lot of time and not collect a huge package of documents. It is enough to contact your creditor and write an application for the provision of such a service.
The financial institution may consider the application up to 30 days, and in case of a positive decision, it will invite you to jointly change the terms of the loan. Thus you can:
- reduce the interest rate;
- reduce the monthly payment;
- change the currency of the loan;
- ask for holidays in the payment schedule;
- make other changes that can be resolved individually.
Refinancing and restructuring is the right of banks, not an obligation. The legislation in the Russian Federation is structured in such a way that financial companies may refuse to issue a loan or amend the terms of the contract without explaining the reason.