What is credit refinancing?

Sometimes circumstances develop in such a way that the borrower can not fully make payments on credit obligations. Salvation in this difficult situation can become a refinancing loan. It is worth noting that such a banking service is not available to everyone. It can only be used by trustworthy clients, that is, having an impeccable credit history. To do this, they should not have a delay in making monthly payments. In addition, the bank's employees will pay close attention to the level of income. Sufficient is the financial condition of the client, which is able to cover costs immediately under two loan programs. It is necessary to say a few words about what a loan refinancing is. The essence of this banking service is the following: a financial institution issues new borrowed funds to the client with a smaller monthly payment, but for a longer period. Having received the necessary amount, he repays the loan taken earlier. It is noteworthy that it is possible to resort to the refinancing service for any type of lending, be it consumer loans, car loans or mortgages.

Often, borrowers tend to refinance a previously taken mortgage loan, and this is logical, because such a banking product is issued for a fairly long period, during which interest rates may change in a smaller direction. Before making such a decision, it is advisable to consider that this procedure can entail the following costs:

- commission to the bank for early repayment of the loan (up to 5%);

- commission for opening and maintaining an account, signing a contract and others;

- evaluation of the property;

- Payment for notary services for the execution of the contract;

- and others.

In general, the procedure for refinancing a mortgage loan is somewhat complicated. Banking institutions most often refuse to provide such a program for this type of lending. This trend is easily explained, because in this case, financial institutions for a certain period of time lose the ability to control the collateral, resulting in the risk of re-registration of real estate is not a bank institution.

Thus, the refinancing of the loan in the above example refers to one of the most complicated procedures, and, accordingly, the requirements for borrowers are toughened. For this reason, only large banks provide their clients with loan refinancing, Sberbank, for example.

Some borrowers find themselves in a less favorable position, taking a new loan. This is because consumers often evaluate the benefits of a particular banking product solely on the basis of the interest rate. This is wrong, because for a tempting low rate, various "pitfalls" can be hidden. The lending experts note that refinancing can only become profitable if the interest rate on the proposed product is at least 2% less.