Refinancing loans are becoming increasingly popular among Poles. Their main advantage is a lower price. Therefore, if you also feel that you could pay less for your loan and wonder if a refinancing loan is for you, read this article.
What is a refinancing loan?
A refinancing loan is nothing more than the exchange of a current loan for a new one, which is most often taken out in another bank, for example at a lower interest rate. A new loan is granted to pay off one debt, not a few as it is the case of a consolidation loan.
When is a loan refinanced?
It may turn out that a mortgage or a loan for the purchase of a new car that was taken years ago has a higher interest rate than currently available loans on the market. Due to the high competition among financial institutions, banks are increasingly offering loans with a much lower interest rate than a few years ago. When comparing both loans, you can consider changing to a refinanced loan. By choosing this option, the current loan will be repaid by the new bank where the refinancing loan will be drawn.
If you have a loan in a different currency, e.g. in francs or euros, you can use a positive currency spread and also use a refinancing loan. Refinancing will only be beneficial if the exchange rate on the day the contract is signed for a new loan is lower than when the old loan was taken.
What to look for when choosing a refinancing loan?
Refinancing a loan has its pros and cons, which is why you should carefully read the new and old loan agreement when choosing it. When choosing a refinancing loan, one should first of all pay attention to:
- loan period – i.e. the period for which the loan was taken, on which the amount of the monthly installment will depend
- bank fees and commissions – a fee for early repayment of an old loan and a commission for taking a new one. The change of the bank must be recorded in the land and mortgage register, which is also connected with the payment
- loan interest rate – is the bank’s margin and the sum of the market interest rate called the reference rate. The interest rate depends on the amount of credit taken and own contribution
- currency spread – this is the difference between the buying and selling rates. A very important factor when taking out a loan in a different currency. The loan is granted after converting it into zlotys at the buying rate, while the installment amount is calculated at the selling rate
Having a long-term commitment to repay, it’s worth comparing it with the offers currently available on the market and considering a refinancing loan. It can be even twice as favorable as the old loan, and the monthly installment much lower.