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In the event of problems with loan repayment, a solution that defers the loan repayment term is becoming more common. What lies behind the concept of refinancing a loan? Who can use this option and how should it be done?
The very word refinancing refers to a monetary operation, the essence of which is to acquire external sources of financing for the replacement of own funds spent for some purpose. Therefore, refinancing a loan consists of taking out a new loan to repay a financial obligation previously incurred.
In practice, it looks like the loan company whose borrower reports a problem with timely repayment (let’s call it A) offers the opportunity to use the services of another loan company (let’s call it B). Usually these are just friendly companies. The borrower has the opportunity to set a favorable loan repayment date. It should be emphasized, however, that a person who uses the refinancing service will not receive money from a new loan into their account. The funds are transferred by transfer from loan company A to loan company B. The borrower’s debts to the first lender are settled. From the moment the new loan agreement is signed, the borrower has a debt owed to company B. In the refinancing process, the borrower has to pay the fee. This is a commission for company B, i.e. the one to which the debt goes. The amount of the refinancing loan corresponds to the amount of the loan with which repayment problems occurred.
This is a relatively new financial service offered to non-bank financial market entities. Until recently, rollover loans were a common term in this context. The functioning of lenders from the non-banking sector changed after the entry into force of the Anti-usury Act , and more specifically after the amendment to the Act of 21 July 2006 on supervision of the financial market. Non-bank institutions offered rollover loans, i.e. deferment of repayment, before the changes in the regulations. Due to loan cost limits, which also include costs associated with postponing the repayment date, this service is no longer profitable for lenders.
These two concepts share a common denominator. It is a postponement of the date of payment. Currently, some loan companies allow the repayment deadline to be extended and allow the payday loan to be split into installments. This option is not always available. Of course, certain costs must be incurred. Refinancing a loan is a form of extending the loan repayment date .
The loan refinancing service offered by loan companies is addressed to people who are unable to pay the financial liability within the set time limit. The deadline for repayment of the loan is specified in the loan repayment agreement or schedule. In the case of short-term loans, the repayment period is short, so there is often no schedule and the final date for settling the debt is included in the contract. The loan repayment schedule used each time for installment loans is a plan that includes the amount of outstanding installments and the maximum repayment date for each installment. It usually happens that the borrower determines the repayment period. Even a meticulously planned home budget can be tarnished by sudden, unplanned expenses. Problems with timely repayment can occur especially in the case of high installments or too short a period to repay a loan taken out for a large amount of money. Late payment results in late payment fees with penalty interest, reminders to pay the debt and, as a consequence, the lack of its regulation by transferring the case to court and enforcement proceedings. An unreliable borrower goes to nationwide debtors’ bases. By refinancing a loan, you can avoid similar problems.
The borrower may use the refinancing service of the loan taken out, first of all, when the loan company does not have in its offer the possibility to formally extend the repayment time of the liability.
In order to use the refinancing service, the borrower should contact the loan company with which he took out the loan. This can be done by calling the customer service office of a specific company or by using the individual profile system on the website. Detailed information on costs can be found in the table of fees and commissions or in the regulations. They depend on the amount of the commitment and the period the borrower would like to extend the repayment. In this situation, the lender does not charge any penalty interest. Usually, all the formalities related to transferring the liability to another loan company are arranged by the lender. The borrower is obliged to accept the new conditions for returning the loan.
It is worth remembering that refinancing a loan is an opportunity worth taking advantage of in a crisis situation, but too often problems with timely repayment of a financial liability and any re-use of refinancing options may result in an avalanche of unpaid debts. As a result, the borrower falls into a debt spiral.