In modern times, no one will be surprised by such terms. In our country, almost every person between the ages of 30 and 60 applied to creditors for additional financing. Due to the high demand for loans and microloans, people are diving deeper into the world of lending and increasing their financial literacy. Therefore, there is more information about the various components of this world. In this article, we would like to talk about how credit history and loan refinancing can be interrelated.
The answer is unequivocal – yes. Refinancing a current loan is, in fact, a new loan on new terms, more suitable for the borrower in this situation. You can issue such an agreement both in your own and in another bank. The lender will, of course, be interested in your financial position and general attitude towards money. The most convenient way to get the information you need is just a credit history. Therefore, as in obtaining a new loan, the conditions for refinancing will largely depend on your CI. The lender will be able to determine what amount of payment will be more convenient for you, for how long to sign the contract. Also, the bank may refuse at all if it detects that you are in bad faith about your financial obligations.
The fact of such a contract will certainly be reflected in your credit history. Whether your rating will get worse or better depends on many circumstances. Most likely, the situation will worsen because the borrower has simply ceased to cope with its obligations, and therefore is not completely trustworthy. The credit score also suffers most of the time from the refinancing record in the credit report.
In any case, it is advisable to collect more information about the bank in which you have a loan and about yourself. If in the future, when you want to take out a mortgage or a car on credit, you will be informed that the interest rate will be several percent higher due to the refinancing record at CI, you will have to prove that this was a decent way out of a difficult financial situation. For example, the bank raised the interest rate when other lenders did not have worse conditions. Or your life situation has changed so much that there is no physical ability to comply with the terms of the contract. It happens that the family loses the breadwinner or one of the spouses, dismissed from work. In such a case, if the borrower immediately turned to the lender, and they jointly found a way out of the situation by refinancing the loan, this will only prove the reliability of the borrower.
There is another point with the early repayment of the loan. Indeed, in the case of refinancing, the borrower, in fact, takes a new loan, and closes the existing loan. In many cases, early closure of a loan agreement leads to a decrease in the borrower’s credit score. Therefore, be prepared for this. An exception may be the situation if you manage to take a loan from the same lender.
If early repayment is stipulated in your agreement, then any method of closing a loan should not worsen your credit history. Rather, on the contrary, many banks will be more willing to offer you their products, knowing that you pay your bills without any problems. In some situations, to improve the score, it is even better to get a loan to close a current loan. This suggests that you are responsive to your obligations and at the same time are not afraid to take on new ones. Such actions will help in the future to get better deals from large lenders.