All people who pay off bank loans have probably heard of restructuring and refinancing: these are two ways to reduce the credit burden, but there are important differences between them. In this article, we will figure out how restructuring differs from refinancing a loan and in what situations these financial instruments can be beneficial to borrowers.
What is loan refinancing?
Refinancing is the repayment of one or more previously taken credit loans by opening a new one. This procedure is often also called refinancing.
To refinance their current loans, the borrower can contact the same bank and refinance on new terms, or take out a loan from another financial institution.
After the conclusion of the agreement, the bank transfers funds conduit cn mobile number database to the borrower to independently close the debts, or transfers them directly to the previous creditors. In the first case, it is necessary to confirm the fact of closing the old obligations with certificates of no debt within a pre-agreed period: otherwise, the client is subject to penalties in accordance with the conditions specified in the agreement.
Typically, clients apply to banks for refinancing for the following reasons:
The financial market has experienced a more favourable situation: for example, the Central Bank has lowered the key rate, which has made lending conditions more favourable.
The borrower has several previously opened loans and wants to combine them on more favorable terms and for the convenience of making payments.
The client decided to repay the debt early.
There is a need to obtain cash for unexpected expenses: many banks provide the opportunity to receive it on top of the principal amount of the refinancing.
The client has experienced financial difficulties that have not yet resulted in a delay in current obligations, but the amount of payments has become unbearable.
Most often, borrowers have to refinance loans in other financial institutions, since the banks that issued the loans do not always agree to this procedure: in addition, they are not obliged to improve the lending conditions even if the regulator reduces the key rate.