Refinancing is a concept that is closely related to, for example American mortgage, conventional mortgages, consumer loans and other types of loans. A competitor to this financial product is loan consolidation. Both have one important objective.
- Reduction of monthly instalments
- Lower interest
- Minimising costs
However, it is essential to know what are differences between the two variants. Each of them has not only a different meaning. They also come with certain pros and cons. We will convince you of this in the following lines.
What is loan refinancing?
When you say loan refinancing...you can imagine only one thing. In layman's terms, the old loan is replaced by a new one. It will come with better credit terms. That is, it has a lower interest rate or offers something extra. You will therefore make this move with the prospect of saving money. At the same time, it can become a solution when you are not able to repay the unfavourable debts.
Loan consolidation and additional information
Consolidation is essentially based on refinancing. Behind this term, however, lies merger or, if you prefer, unification. Multiple loans are combined at the same time. These are in effect replaced by a single one. You will learn about the advantages of both solutions through the lines below.
These can be non-bank loans, consumer loans, overdrafts and credit cards.
Yes, first and foremost it will be due to the better interest rate. Then the extension of the loan maturity may also contribute.
It doesn't have to be that way. For example, if old loans come with high prepayment penalty fees, they are not worth it.
Yes, with both consolidation and refinancing, you can get extra financing. You just need to be a creditworthy enough client. This means that you prove your creditworthiness to the new lender.
These loan products are currently offered not only by banking institutions. You can also take advantage of the product offers of non-banking companies licensed by the CNB.
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