How to Refinance Your Loan
How to Refinance Your Loan
You may have heard the word ‘refinancing’ floating around before without being sure of what it is and how it works. It can be difficult to know when to refinance a loan or where to start – there can be multiple factors to consider, such as interest rates, the length of the loan and whether it will impact your credit score.
At Evolution Money, we want to lend a helping hand and arm you with the knowledge to make an informed decision. The choice to refinance a secured loan isn’t an easy one, so have a look below before you decide what to do next.
What Does It Mean to Refinance a Loan?
Refinancing a loan means that you take out a new loan to pay off one that you already have – this then replaces the existing loan with a new one.
Can you refinance a secured loan? Absolutely! You may even end up getting a better deal on your refinance (in terms of a lower interest rate and an improved repayment plan), meaning you pay less than if you stuck with the original loan.
The key thing is to manage your debt to the best of your ability. When you refinance a secured loan, you should be confident that it’s the best move for your personal situation. Everyone is different – what works for some may not work for others. We’ll explore that later.
How to Refinance a Loan
Depending on the type of loan you have, there are different ways you can refinance a loan but, typically, it will take the form of these steps:
Step 1:
Start by asking your existing lender for a settlement figure. This will simply show the amount needed to pay off the debt in full, including any relevant early repayment charges that apply.
Step 2:
Research, research, research! Shop around to see which provider and which loan is best suited to your needs. This will vary depending on your circumstances, so its important to consider the borrowing period, the interest rate and the impact it may have on your credit score.
Step 3:
Happy with your findings? It’s on to the application. Even an application can sit on your credit file for two years so only apply when you’re confident that it will be approved.
Step 4:
Once the payment has landed, use it to pay off your existing debt to complete the process to refinance a secured loan and take the steps to improve your finances.
Now, you have a new loan, a new lender and, most importantly, a new agreement. Always stick to this agreement to guarantee no negative impact on your credit score or financial situation.
Can I Refinance a Loan Without Harming My Credit Score?
The short answer is yes. Applying for multiple loans can impact your credit score, as can borrowing more money than you can afford. When managed correctly, though, you can refinance a loan and end up with a positive impact on your credit score. However, we advise that you never apply for credit if there is a chance that it will be declined. If you’re not sure if that might happen, it’s a good idea to keep track of your credit file with ClearScore or Experian so you know if it ever fluctuates or if something is affecting it that you can change.
Risk vs. Reward
As with everything – and especially when it comes to financial decisions – it’s always a good idea to weigh up the pros and cons to see if something is suitable for you. That is no different here because, when you refinance a secured loan, you need to know whether it is going to work for you in both the short and long term.
Refinance a Loan: Advantages
- Likely that you’ll get a better interest rate on your new loan
- Lower monthly repayment plan
- Stronger management of your finances
Refinance a Loan: Disadvantages
- May have an early repayment fee to exit your existing loan
- Applying for a new loan will prompt a credit check that will go onto your credit file for two years
- Can have a negative impact on your credit score
Refinance a Secure Loan With Evolution Money Today
Now that you have reviewed everything to do with refinancing loans, you can make the decision that is best for you and your finances. If you wish to refinance a secured loan, always consider the impact it can have on your future, not just in the short term. Your credit score follows you throughout your life – keep it healthy and strong.
Ready to take the next steps? Start by checking your eligibility with Evolution Money today. It has no impact on your credit score and will give you a quote in minutes.
We have thousands of happy customers who can vouch for our ‘Excellent’ team, as we aim to offer a quality and trustworthy service every time.
Got more questions? Just want some general money management advice? Head over to our help and advice hub which our knowledgeable team have populated with their expertise.
Representative 28.96% APRC (Variable)
For a typical loan of £26,600 over 180 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £484.00. This includes a Product Fee of £2,660.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £87,030.00. Annual Interest Rates range between 11.7% to 46.5% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
