In the present day financial environment when you take out a loan, whether for personal use or for a business purpose, there is no certainty that you will be able to repay the EMIs on time. You may try your best to keep paying the EMIs on time, but due to some reasons beyond your control, you might not be able to keep your commitment. In such a situation there is a chance of defaulting on the loan which could destroy your credit score.
In another scenario, you had to take a loan desperately to meet your financial requirements, but as you were desperate, the lender forced unfavourable terms on you. Now, these terms are starting to hurt your financial position, and you need a way out.
In both the above situations, Debt Refinancing is the only viable option that you have.
What is Debt Refinancing?
Debt refinancing, commonly known as a balance transfer, is the process through which you consolidate your multiple loans into one new loan with a new lender on favourable terms. These favourable terms usually are lower interest rates and longer repayment tenor. Debt refinancing saves you from defaulting on your existing loans and offers you the option of lower EMIs and lesser interest outlays. When all your existing loans are consolidated into one single loan, it becomes easier for you to make the repayments. This helps you rebuild your financial position.
When to opt for it?
The decision to exercise the option for Debt refinancing can be taken due to any of the following reasons: –
Precautions to take
Always remember that when you refinance your debt, the new lender might put some unfavourable conditions in the fine print, so you need to take the following precautions when refinancing your debt: –
Checklist of Documents
Following are the various documents that you need to provide to the new lender for processing of your application: –
Debt refinancing is an excellent option if your financial situation is under stress and you need some time to be able to reorganize your finances without defaulting on existing loans.
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