Debt is an issue that plagues a lot of adults and young adults all across the world. In fact, I would argue that it has essentially become the norm to be in debt as opposed to free of it. The question is, then, if there is anything that we can do about it? As should be expected, really, there is no definitive answer to that question.
On an individual level, though, we can take some actions to at the very least minimize the impacts that having a lot of debt can have on our personal lives. What do I mean by that? Well, for one thing there are the repayments. They are not exactly minimal in a lot of cases, and even if they are, that may just mean that you will be making those payments for a very long time.
Often, we end up agreeing to the terms of a financial agreement long before we realize that the terms are unfavorable for us. While this does teach a cautionary tale or lesson of sorts about planning ahead, hindsight is always 20/20, and giving up hope once we are already in a bad situation is not going to help anyone.
It’s easy to lose hope in these situations, and I can certainly understand that. Thankfully, though, there are ways that we can renegotiate the terms of any loans or contracts that we don’t find favorable anymore. While it can seem intimidating, once I explain, hopefully you’ll understand a bit better.
What are Credit Agreements?
Before we delve into the rest of our topic today, I think it is a good idea to take a look at credit agreements in a bit more depth. A lot of people make them without fully realizing what they are signing onto, which (while understandable) is quite a risky move. I’m a huge proponent for education on these matters, considering how important they are to our adult lives.
The question to answer, obviously is “what are credit agreements?” Thankfully, it is pretty simple to explain them. Basically, they are a legally binding contract that a borrower makes with a lender. This is important to note, of course – that “legally binding” is a big deal. So, when you are offered an agreement like this, do be sure to read everything…including that dreaded fine print.
Besides that, though, what is there to know? You can probably guess that we have a lot of ground to cover. The biggest thing to note, though, is that it is a way for the terms to be outlined in a document that is accessible for both parties. This includes the repayment period, the interest rate, and more (depending on the lender and the terms that they outline) – so, if you ever forget, you can go back and read it.
Most of the time, said terms will be dependent on factors such as your credit score. While this can certainly be a frustrating aspect of this process, the fact of the matter is that it demonstrates how reliable you are as a borrower. So, it is not a bad idea to be familiar with your score before you start to apply, since it really can have a large impact.
What is Refinancing?
Perhaps you are wondering why I have imagery of a calculator and a crude depiction of a house above – well, it’s simple. For a lot of people, their first thought when they hear “refinancing” is the process for mortgages. Admittedly, this is probably the type of loan that is eligible for this process most often, and it is done for them fairly frequently compared to others.
Why is that? Well, it is likely mostly due to the lengthiness of them in terms of time – after all, the interest rates will probably fluctuate a lot over the period of twenty to thirty years. So, it is not exactly shocking that this is one of the main types of loans that undergoes refinancing.
However, they are far from the only ones, as you can see here, refinansiere.net/refinansiering-kalkulator, if you are curious to see some other examples. The most important thing here, really, is that you can do this with any credit agreement so long as you qualify for the terms of the new loan.
You can go about this in a few different ways, so I will do my best to explain both of them. Just do your best to follow along, since sometimes it can get a bit complex. Don’t worry if you are feeling lost!
Renegotiating with your Current Lender
The first method is fairly straightforward, as you can probably tell from the heading here. Essentially, it involves discussing the contract with your current lender and renegotiating some of the terms involved. Typically, this involves altering the current interest rate, although it can also be adjusting monthly payments.
If your credit score has improved since you opened your loan, that could work in your favor quite considerably. You see, a lot of lenders are much more willing to consider a refinancing plan with their borrowers if this is the case, since it demonstrates a dedication to change and that you are responsible with your money. The inverse is typically true if your score has lowered since then, so do be sure to keep that in mind.
Moving to another Lender
This is where things get a tad more complex, although it is hopefully not overwhelming still. For this, you take out a loan with a different lender that allows you to essentially “buy” out your previous loan. Just remember that many lenders will charge you a fee for ending your loan early, so that is something to bear in mind as you figure out what your new principal balance will be.
Ideally, with this new credit agreement, you will have a lower interest rate than the one that you are replacing. That is the primary reason that folks look to go through the process in the first place, so stating that up front in your new contract might be a good idea. Additionally, a smaller monthly payment could be something that you are seeking out, so it does not hurt to ask.
How it Works and Why People Pursue it
To conclude today, we can examine the final aspects of refinancing that you may have some questions about. So – you know that it is renegotiating a previous contract. How does that actually play out, though? Obviously, it will be a bit different depending on which route you opt to take, but generally speaking it is fairly similar at least.
A lot of financial institutions have applications that are open expressly for refinancing, so check that out and see if yours does (or if the one that you intend to work with to replace your old lender does). You can also call to inquire if you do not see any of them as an option! Honestly, I believe that opening communication in that way never hurts, so you may want to do that anyhow.
Now, it might seem rather obvious as to why people do this, based upon everything that I have explained thus far. You are correct to some extent at least. When interest rates get lower on a national level, that means that it is time to start considering refinancing options. There is no real reason to keep paying the higher fees when we have this option available to us, after all.
Monthly repayment plans can also put a lot of pressure on a borrower. This is especially true when those payments are a hefty sum. Changes in jobs happen a lot more than they used to, and sometimes our situation just changes. Having this as an option available to us can be a real lifesaver in certain circumstances, such as getting a new job with less pay at the start.
As you can see, there are plenty of motivations that a borrower might have for wanting to refinance their loans. I shared some pages above that can help you sort out if it could work for you. Remember, you can always use the calculating websites to predict if it would be beneficial for you right now!
They can show what current interest rates are, and as you plug in the figures from your current agreements, they can project whether you will be paying more or less in the end if you decide to refinance. Perhaps you will find that it is better to wait for now, or you will discover that you could save a ton of cash. Either way, it does not hurt to at least check it out and give it a try!
Hopefully, this article has helped you to discover a bit more about how this process works and whether or not you want to look into it at all. While it can be somewhat complex at first glance, thankfully you can move forward as a well-informed borrower now!
