Loan Refinancing: Thinking Over Twice

2007-03-08 10:33:40

( Financial )



Loan refinancing is like getting a second wind - you go back to square one and start over. For some people, getting a loan refinancing is like a fresh start, while to others, it is the only way to survive and get out of a financial crisis.

Whatever the motivations are for refinancing loans, it is something to be used very carefully.

Case-to-case basis

Refinancing loans is actually getting another secured loan making use of the same collateral. It is taking out a loan twice making use of one asset as guarantee. Why would anybody want to do this? The reason being is that refinance loans are packaged differently from the original loan. Refinance loans offer different terms which may work to your advantage. Some may have lower interest rates, longer-termed, shorter-termed and the like. What you will choose will depend on your situation.

Another reason for getting loan refinancing is that your property in question may have increased in value. So you are availing of loan refinancing to cash in on the profit and use the equity loan to pay the original debt and have some left over to be used for other purposes. This is particularly useful for real estate properties whose worth goes up with time.

In this case, loan refinancing is very helpful. Getting a new loan does not always mean falling deeper in debt. On the contrary, you get to free yourself of the first loan and use the extra money however way you see fit.

Treading on thin ice

Of course you are bound to the conditions of the loan refinancing program that you are receiving. Make sure you know what you are getting into. Be especially careful if you are going into loan refinancing to restructure your debts with the hopes of fixing your finances. Most loan refinancing programs have very stringent policies that are very difficult to get out of if a problem arises.

Loan refinancing is a double-edged knife, and going into it takes thoughtful deliberation. On one hand it may give you the new beginning that you want; then again, it may not be the salvation you were expecting it to be. You have to think twice lest you end up in a worse situation than when you began.

Remember, in loan refinancing you cannot afford to make the same mistake twice.


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