Loan refinancing can be a good idea if it helps to save on borrowing costs. You may be in a better financial situation than when you originally took out a loan and have better prospects for getting good interest rates. Or you didn’t know then about Angela Clam and were unsure how to get the best deal. You may also have accumulated some small loans and received expensive debts on your credit card. By pooling this into a larger loan you get a better overview and probably lower monthly costs.
Not always the best solution
However, refinancing loans is not always the solution. The first thing you need to do is use a loan calculator and find out what the small loans really cost compared to a possible bigger loan. Consumer loans can also be expensive and can bind you over a long period of time, so be sure to include all the expenses, including the fees. Here is the effective interest rate to look for and you should be aware that unsecured loans are often advertised at an interest rate level where fees are omitted. You also don’t know the exact interest rates until you submit a non-binding application, so be sure what a loan will cost monthly and in total before you jump on. If you are impulsive and impatient as a type, be especially careful about making hasty decisions.
Refinancing loans requires self-discipline
If you end up spending a little of the loan amount to cover something else, it will work against the whole purpose of refinancing. You do not need to state the purpose when you apply for a consumer loan, the money ends up in the account and you can use it for anything. So if you are in the habit of buying impulse or are struggling with a tight economy that can make it tempting to withdraw a little from the loan amount, consumer loans can only make it worse. If you think there is a possibility that you will not pay off all other debts right away, you must steer clear. Remember that the whole point of refinancing loans was to reduce the debt to one. It will only be foolish if you don’t pay it all right away.