In this article, we’ll discuss how you can settle your debts with a refinancing loan. We’ll examine the benefits of this credit, how to get the loan, and the guidelines you need to follow. Furthermore, we’ll also provide tips to increase your chances of getting your loan application approved.
Types of Refinancing
Usually, refinancing is a process whereby an individual gets a new loan to pay off existing debts. This is perfect for individuals with multiple consumer loans, credit card debts, and installment purchases. All these debts can be consolidated into one single loan. When you choose this type of refinancing, you enjoy the following advantages:
- Lower interest rates.
- You save money since you don’t have to handle multiple long-term costs.
- Your finances are more transparent.
Heavy multiple-credit card debts are one of the main reasons people take out refinancing loans. Normally, the interest on these cards is way higher than on other types of unsecured loans. If you are battling with multiple credit card debts, you can refinance and consolidate these debts into one loan.
Another type of refinancing is when an individual swaps one loan for another. In other words, you take out a loan to replace an already existing loan. When people do this, they always ensure that the new credit has better terms than the previous one. This option is usually used when dealing with large consumer credits and mortgages.
Getting the Cheapest Offer
Just like any other type of loan, the offers from different lenders vary. This is why you need to get several offers from different lenders when you want to refinance. When you get the offers, carefully compare their effective interest rates to determine which is cheaper.
You can also use a loan agent to help you get the offers. These agents partner with several lenders, and they don’t charge any fees for their services. They get remuneration from the banks when they bring in new customers. The agents can even offer you tips and advice whenever you have questions.
Refinance to Get Control Over Your Finances
With refinancing, you can get better control over your finances. Individuals who have payment notices and debt collection cases can take advantage of this financial tool. You can avoid these issues when you consolidate this debt.
If you choose to refinance, ensure that you get the loan as quickly as possible. This will prevent you from defaulting on your existing loans. Individuals who have active payment notices can only secure a refinancing credit with a highinterest rate.
In some cases, the bank might choose not to lend the money to such individuals. If you find yourself in such a fix, you need to pay off the debt that led to the payment notice first. Once you’ve done that, you can then reapply.
Cost of Refinancing a Consumer Loan
To determine how much refinancing a consumer loan will cost, the banks have to conduct an assessment of the applicant’s finances and credit history. If your credit score is good and you have the financial capacity to repay, the interest rate is usually low. This is quite the opposite for a person with a poor credit score and financial challenges.
Effective interest rates range between 5% and 20%. You can request an interest rate example from the bank to give you an idea of what the loan will cost. You can visit besterefinansiering.no/ to find out more about this interest rate example. The interest rate in the example is usually between 9% and 14%.
Requirements to Secure a Refinancing Loan
The following are the requirements needed to secure this type of credit from lenders:
- Individuals older than 25 who earn a minimum of NOK 250,000 annually will meet most banks’ minimum requirements.
- Individuals between 18 and 25 who earn below NOK 250,000 will meet a few of the bank’s requirements. The reason for this is that some banks do not give such credit to 18- and 23-year-olds. Also, the income might not meet the bank’s standards.
- The lender has the right to refuse your application, regardless of whether you meet their requirements.
- In some cases, the lender might reject the application for a certain amount and then offer you a lower amount. This is usually due to the lending requirements of the bank and the guidelines set by authorities.
Documents Required
When you submit your application for this credit, banks are permitted to retrieve your tax details to enable them to assess your application. Yet, you still need to document your income and send it to them. You’ll need to send them copies of your past three months’ paychecks and the previous year’s tax return.
In case the tax return doesn’t contain a new source of income, you need to document it as well. People make this simple mistake and end up shortchanging themselves. The more income you have, the higher the possibility of getting the loan approved.
If you are self-employed, the documents required are a bit different. In this case, you’ll need to provide proof of income that covers the past three years. Lenders are more strict with entrepreneurs because of the unpredictable nature of their income.
Authorities’ Guidelines
Lenders must also comply to a certain degree with the Norwegian Financial Supervisory Authority’s guidelines. These guidelines primarily aim to protect individuals from obtaining loans that they can’t repay. Some of these guidelines include:
- The amount an applicant can receive must never be five times more than their annual income.
- The maximum repayment period for an unsecured loan is five years.
- The applicant must possess the financial ability to repay the minimum 5% interest rate.
- The applicant’s revenue must be sufficient to cover normal day-to-day expenses.
The Norwegian Financial Supervisory Authority (NFSA) emphasizes these guidelines for normal consumer loans. You can check here to learn more about the NFSA. However, when it comes to refinancing loans, they are less strict. We recommend that you get financial advice from financial experts so that you don’t place unnecessary burdens on yourself.
Securing a Refinancing Loan is Easier
As we said, the Norwegian Financial Supervisory Authority is not so strict when it comes to refinancing credit. This is why many banks do not comply completely with the guidelines in this case. As a result, securing this type of credit is easier compared to consumer credit.
Another great thing about refinancing is that the repayment period can be longer than five years. This works perfectly for individuals who cannot keep up with large monthly repayments. You can spread the payment over a longer period, thereby significantly reducing the amount you have to pay each month. If you choose to do this, bear in mind that the overall cost of the credit will significantly increase.
If a bank chooses to approve your application even if you don’t meet the requirements and guidelines, then you must use the funds for refinancing only. The money received cannot be used for any other consumption. Bear in mind that refinancing is supposed to reduce your debt costs. Therefore, if the offer you receive doesn’t do this, it makes no sense to go ahead with it.
Take Advantage of the Co-borrower and Guarantor Options
If your repayment ability is lowor your income is five times less than the loan amount, your application will likely be turned down. If they choose to still give you an offer, the amount will be small. If you find yourself in this situation, you don’t need to give up completely.
You can still get your application approved by applying with someone else. When you do this, the person becomes a co-borrower and is responsible for paying back the money the same way you are. It’s required that you have a joint account with such an individual. This is why partners or spouses are the perfect people for this task.
You can also get a guarantor if your lender allows it. This is usually a last resort and should be treated with the utmost care. The guarantor you provide will bear the responsibility if you default.
Conclusion
Refinancing allows you to pay off existing debts. Not only do you get rid of your debts, but you also get to enjoy reduced fees and lower interest rates. In the article above, we’ve revealed important information that you need to know that will help you settle your debts with a refinancing loan.
