Once people sit down and evaluate their finances based on the following reasons why you should consider refinancing your loans they usually refinance. A review may very well show that you are doing better than you thought. It may show you that you are now qualified for better rates and or more money. And it may show you that you must reduce your monthly payment to make ends meet.
The news and bad news is this: The economy is doing poorly. That is bad because it may directly impact your income, but it is good because it means that the cost of money has gone down.
1. Interest rates are at an all-time low
An interest rate that was 6% 3 years ago could easily be 3.19% today. That can make a big difference. This is number one of the 5 reasons to refinance your loans. It allows you to either pay off your loans quicker or extend them for the same cost over time as your original loan.
2. Your credit score has improved
The higher your credit scores the lower your interest rate in most cases. This is because the risk of loaning you money goes down as your score goes up. It is especially true when you have a perfect history on the loan you want to refinance. A history is everything for credit ratings.
3. Lower monthly payments
If you qualify for lower interest rates and can extend the time for repayment you can get your monthly debt reduced. Times are tough but you may have options that keep your credit intact and reduce the stress of monthly bill time. Do not forget another option. If you can get a better rate and increase your payments per month you can retire the debt sooner.
4. If you had a bad deal to begin with
Very often we do not do a good job shopping for a good loan. There are many reasons for getting a bad loan. Most reasons have to do with the excitement of buying something. Now you have time to reflect and evaluate. See what is being offered and compare. You may be surprised at just how bad your current loan is. It is important not to feel bad about your previous bad deal. What is important is that now you can save some money and reduce a debt.
5. Increase in equity
Many items that you finance increase in value as time goes by. Sometimes things happen in the market place that increases the value of what you have a loan on. Jewelry and homes are the most common examples. Or if the loan was for an upgrade or improvement and it worked out well that can increase the equity. An increase in equity means both a decrease in risk and an opportunity to borrow more.
There are other reasons, beside these 5 reasons to refinance your loans. But if none of these reasons apply it may not be advisable to refinance. The key is to be aware of these reasons and apply them to your situation.