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If you already have a loan, and the situation in the market is changing, for example, different banks are offering
now better lending conditions, but your bank does not want to lower
your interest rates or in some other way change terms of repayment to make it more suitable for you - you can
consider changing the lender. In other words,
you may consider getting a Refinance Loan.
Refinancing means getting a loan for the repayment of another loan (or some other type of credit).
In practice, it means a transfer of the loan from one bank to another. Such operation is advantageous when the
current loan has high interest rate, and the bank does not agree
to reduce your installments. In such case, you can use services of another bank, to lower your installment.
It may be achieved not only by
getting a loan with lower interest rate, but also - for example - by getting a loan for a longer repayment
period than in the previous loan. But - the interest rate is not the only
cost of the credit - so you must bear in mind the costs, which may be associated with refinancing.
First of all, there may be a cost you would pay to the current bank.
The loan agreement may have a penalty clause ("call provision"), in which a commission for the lender is foreseen
in case of early repayment of the loan. In some cases this may be even 1-3% of the remaining capital,
so in case of a large credit amount, it can be a big expense, which can make refinancing not profitable for you
(cumulative gain on the interest over the remaining repayment period can be lower than the fee for early repayment).
Therefore, if we get a loan, it is important to make sure, that the lender does not charge any fees for early repayment.
If we have the freedom to change the bank, it will be a strong argument in negotiations with the bank
and maybe the lender will change the terms of the credit and you won't have to refinance at all.
In addition, with some kinds of loans, there may be additional costs.
This applies mainly to mortgages. Every lender needs a collateral and in most countries
securing a home loan is not free - there are some fees collected by
the courts and there may be also some taxes to be paid (of course in different countries the procedure of securing
the loan may vary).
Finally, you must take into account potential additional fees for the new lender.
However, usually the new bank will not charge any fee to encourage us to refinance the loan.
Refinancing is usually profitable in times of prosperity and good growth in the economy.
On the other hand, in times of crisis, banks usually are less willing to lend money and
the situation on the credit market can get worse than it was while you
were getting your current loan. In such case, you usually won't find any good
offer of refinancing your loan.
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