Refinancing reduces the debt burden on the borrower, but why should the bank recalculate the rate and lose the interest guaranteed by the contract? There are two main reasons.
If refinancing is carried out in the same bank where the original loan was issued, the client may be offered more favorable terms of debt repayment so that he can fully pay off his obligations. For example, if the debt load is too high and the client cannot cope with monthly payments, it is more expedient for the bank to change the terms and receive the estimated profit than to sell the collateral or divide the funds with other creditors in the event of bankruptcy of an individual.
When refinancing loans issued in other financial and credit uk mobile database institutions, the bank receives a new client, and along with him, profit in the form of interest on the loan agreement, potential income from insurance payments, deposits, personal account maintenance, debit and credit cards that the client can open when switching to a new bank.
Thus, refinancing is beneficial to both parties: the lender and the borrower, which is why this service is in demand in the lending market, and in recent years its volumes have been constantly growing.
What loans can be refinanced?
The borrower can refinance almost any credit product: debt obligations on credit cards, consumer, mortgage and car loans. However, it should be taken into account that the bank may refuse to refinance a borrower with a low credit rating if debt collection procedures are being carried out against him or her, or the funds are needed to repay loans received from microfinance organizations operating without a banking license.
Is refinancing always profitable?
In most cases, refinancing is beneficial for the borrower, but this is not always the case. It is worth refinancing an existing loan if the new interest rate is lower than the old one by at least 2%. With a smaller difference, the benefit will be insignificant or even zero. In addition, with a small amount of debt and repayment of the loan more than half, even a reduced rate cannot guarantee that you will be able to save.