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Why is Debt Refinancing a good idea?

16 Apr

Why is Debt Refinancing a good idea?

If you are a business owner, then you must understand that sometimes due to the circumstances, you need to take a loan to keep your business on the growth trajectory. But it is possible that at that time your need was desperate, and you could not negotiate hard with the lender. As such you are stuck with various high interest-bearing loans with unfavourable terms, it could be detrimental to your business as you are interested outlays are significantly putting a strain on your finances. But are you doomed to this fate? Most certainly not.

 What is Debt refinancing?

With the option of Debt Refinancing, you can now get rid of your high interest-bearing loan easily. Debt refinancing is the process of converting an existing loan into a new loan. The main purpose of debt refinancing is to reduce the rate of interest and consolidate multiple loans into one. Once your debts are consolidated into one loan, it becomes easier for you to repay the said loans.

Who offers this option?

Debt refinancing is offered by almost all financial institutions, banks as well as non-banking financial corporations. It is also known as a balance transfer, i.e. you transfer the outstanding balance to a new loan with favourable terms. When you exercise this option of debt refinancing, you can get your short-term loans converted into long-term loans, thus easing up the pressure on your finances.

When should you go for Debt Refinancing?

Debt refinancing is a very beneficial process and can be exercised by anytime you like. Following are the particular situations when it is a good idea to get your debt refinanced: –

  • When your existing loans carry a higher rate of interest as compared to the market rates.
  • When your financial situation is precarious, and you are looking to cut down on expenses.
  • When you have multiple loans running and are unable to manage them.
  • When you want to extend the tenure of your existing short-term loans.

What are the benefits of Debt Refinancing?

Debt refinancing offers you a number of benefits such as,

  • Ease of Repayment: – When your multiple loans are consolidated into a single loan, then it is easier for you to keep track of the EMIs and make the repayment on time. When your debt has been refinanced the new EMI is going to be lower than the existing EMIs, making it more affordable for you.

 

  • Save Interest Expenditure: – When you refinance your existing loan to a new loan, you save a lot of money on interest payments. The change might not seem huge to you, but a reduction of even 0.25% turns into a huge amount in the long run.

 

  • Manage finances effectively: – When you only have one loan running and that too at a lower rate of interest, you are able to cut down on your expenses and can manage your finances better.

 

  • Save from default: – If your financial situation was precarious and you were on the brink of default, debt refinancing gets you some time to reorganise your finances and make sure that you can repay the EMIs for the new loan on time.

 

If you exercise due caution, Debt Refinancing can help you save a lot of money and hassle associated with your existing loans.

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