Switch service provider to save money

Looking at optimizing your loan repayment schedule

Often people do not realize that by switching the service provider from which a current loan is in progress can result in saving a lot of money for the borrower. One needs to check the details of the current plan in force, if the interest rate that is being paid, is equivalent to the prevalent market rate, then switching on to another service provider could result in getting a comparatively lower rate of interest after negotiations from the new provider. The lower rate on interest would mean saving on the payment of monthly EMI’s and overall interest payment during the payment term.

What is refinancing?

Refinancing is the process of switching the loan service provider, in an effort to work out and procure a relatively lower rate of interest deal than the one using presently or prevalent in the market.

Why is there a need for refinancing?

With the loan market getting very competitive, service providers are coming out with various loan options which are virtually loss making options for the provider. Most of these options are devised on the basis of starting off with a lower or a minimum interest rate in the initial introductory period of the loan term. After the expiry of this initial introductory period, the interest rates tend to get revised and are in comparison with the prevalent market rate, resulting in an increase in the payout from the borrower. Such situations can be countered by the borrowers who are aware of the market situations or happenings. Refinancing or switching the service provider vendor, every time the introductory period expires can help the borrower in negotiating a lower payout deal with the new vendor and saving on the repayment schedule payout to the vendor.

Advantages of refinancing

Refinancing regularly will ensure the availability of loan at competitive rates from the lenders. Regular refinancing is a slightly tricky process and requires great deal of effort and negotiation skills in the borrowers. There are a few tips that the borrowers should keep in mind when looking at exploring the refinancing options:

Borrower should aware of the expiry of his loans introductory period. This will help the borrower in preparing well in advance before the period actually expires and the borrower is aware of what all refinancing options are available with him.

Borrowers should be aware of all the relevant charges that are associated with the prepayment or the foreclosure of the loans. Also he should be exactly sure about the charges or fees that are required to be paid while taking a new loan or refinancing from another service provider.

Borrowers should try and avoid loan products which charge penalties or other charges for prepayment or foreclosure especially at the end of the introductory period. There are certain service providers who would charge a foreclosure fee but there might be some products which would force the borrower to remain on the higher interest rate by charging a repayment fee at the time of disbursing the loan, and this repayment fee does not tend to provide it actual benefits in line with the introductory period.

Things to look out for

Ideal and cost benefit loan product options are available to borrowers who are taking a loan of amount which is less than the 85% value of their property. In such cases, it becomes relatively easier to get an effective refinance deal and to derive exact benefits of a lower interest rate period.