Exploring Loan Refinancing Possibilities

Understanding The Basics

Refinancing is the process of revising and replacing the terms of an existing credit agreement, usually as it relates to a loan or mortgage. This process involves re-evaluating a person’s or business’s credit and repayment status.

True, refinancing comes with the risk of lowering one’s credit rating at the start, but it also provides the borrower with the necessary funds to get back on track with loan finances.

The primary goal of refinancing, therefore, is to obtain more favourable borrowing terms, often in response to shifting economic conditions. 

Analysing The Reasons

A borrower may be motivated to apply for refinancing for varied reasons, such as the desire to overcome the burden of long-standing debt or improve their credit profile. Among the most common reasons include:

• Lowering one’s fixed interest rate to reduce payments over the life of the loan.
• Changing the duration of the loan.
• Switching from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) or vice versa.
• To access better features and benefits, such as an offset account, a redraw facility or a flexible repayment schedule
• To consolidate other debts, such as credit cards or personal loans, into one loan with a lower interest rate
• To access the equity in their home for other purposes, such as investing, renovating or buying a car

Borrowers may also refinance because their credit profile has improved, because of changes made to their long-term financial plans, or to pay off their existing debts by consolidating them into one low-priced loan. The most common motivation for refinancing is the interest-rate environment – interest rates are cyclical, and many consumers refinance when rates drop.

Knowing Available Refinancing Options

Refinancing can have many advantages, but it also involves some costs and risks you must consider before deciding. A borrower must also determine what type of refinancing option fits their needs to maximise benefits.

Home Loans: Home loans are Australia’s most commonly refinanced loan types. Refinancing can be internal when you switch to a new loan product from your current lender. An example is changing from a variable-rate mortgage to a fixed-rate one. For instance, if the interest rates increase and you want to lock in a lower rate, you might switch from a variable-rate mortgage to a fixed-rate one.

Car Loans: Car loans can also be refinanced. For example, if you initially had a high-interest rate due to a low credit score but have improved over time, you might refinance your car loan to get a lower interest rate.

Personal Loans: Refinancing is also available for Personal loans. This option could be beneficial if you find a lender offering a lower interest rate or better loan terms. For example, suppose you took out a personal loan to consolidate debt but find another lender offering a lower interest rate. In that case, you might refinance the personal loan to save on interest costs.

Credit Cards: In Australia, credit cards are usually flexible enough for you to refinance, either through your existing lender or a new one. For instance, if you have a credit card with a high interest rate, you might transfer the balance to a new card with a lower interest rate.

How To Secure A Refinancing Loan

Once you have chosen the refinancing you want to get, you can begin your refinancing journey with the following steps:

Step 1: Review the Types of Refinance – Find the best option for you. Make sure it fits your needs.

Step 2: Find A Lender – Ask your current lender or find another with better options. You can make your search faster when you get the services of an experienced loan broker like Tiger Finance, who is partnered with 30 or more of the country’s top private lenders for the best deal.

Step 3: Apply for Refinance – Complete a formal application with the new lender and provide any documents it may need to verify your details and income.

Step 4: Lock Your Interest Rate – After you get approved, you may be allowed to lock your interest rate – so it doesn’t change before the loan closes – or to float your rate.

Step 5: Complete a Home Appraisal – You’ll typically need all your supporting documents, like bank statements and pay stubs. You’ll also likely need to get a home appraisal.

Step 6: Use the New Loan to Pay Off Your Current Loan – The new lender pays off your current loan, ending your relationship with your old lender.

Refinancing with Bad Credit

Lastly, let’s talk about how a borrower with bad credit can use refinancing as an option.

Even if you have bad credit, you can still refinance. The first thing you have to do is to determine if you are eligible by asking your current lender. Next, you may ask about refinancing options they can offer to you. Remember, whether you can refinance your loan depends on your lender’s policies and financial situation. It’s always a good idea to do your homework and compare the interest rates and terms different lenders offer before deciding to refinance.

Refinancing might lower your credit score by a few points, so checking your credit beforehand is always a good idea. Researching and finding a better deal that suits your needs and goals is also wise. However, it is not a decision to be taken lightly, as it involves some costs and risks you must consider carefully. If you need clarification on refinancing your home loan, seek professional advice from a mortgage broker or a financial planner.

At Tiger Finance, we always guide you every step of the way with loan experts well-versed in the current situation in the world of financing. You can get a free consultation with our in-house financing expert without obligation to give you the most accurate picture of your loan situation today.

Contact Tiger Finance today so that we can help you begin your journey to secure the exact hassle-free loan product that you need.