Is it profitable to refinance a consumer loan
Re-lending of non-targeted loans is a rather popular service of commercial banks, because it provides borrowers with the opportunity to reduce the financial burden on the borrower's budget. In addition, banks are actively promoting a financial product, because with it you can close several loans at once, plus get cash for consumer needs, and at the same time, monthly payments will be less. But in fact, is it profitable to refinance a consumer loan, if so, which commercial bank offers the best conditions.
About the service
The essence of this program is that the borrower takes a new loan to pay off his obligations in another bank. That is, a bank that carries out on-lending allocates funds for a specific purpose - repayment of loans. And the main advantage of the product is that the size of the monthly payment on a refinancing loan is less due to an increase in the loan term and a decrease in the interest rate.
Banks carry out on-lending under certain conditions. For example, if you have several loans from different banks, then you can combine them into one and you will pay only to one bank. At the same time, the bank has a number of requirements both for the loan and for the borrower himself. In particular, the requirements may relate to the term of the refinanced loan, for example, the payer at the time of refinancing must have already repaid part of the debt.
Please note that most banks have a single requirement for all borrowers - this is the absence of arrears on current liabilities.
Refinancing loan process
As for the lending process itself, it is quite lengthy and troublesome. It is worth starting the process with the preparation of documents. Insofar as the borrower draws up a bank loan, he needs to prepare the maximum package of documents, including a certificate of income and a document confirming employment.
There is another significant nuance, if the borrower refinances a consumer loan with collateral, then the bank may require collateral for the refinancing loan. That is, the pledge and surety of individuals will again act as a guarantee for a new bank loan, and, accordingly, the corresponding documents need to be prepared for the pledged object and guarantors again.
In general, the refinancing process will look like this, you first choose a bank that provides the service, then collect the documents and apply. In case of a positive decision, you will need to contact the lender in order to apply for early repayment of your loan, you definitely need to find out the exact amount to pay off the debt and interest, you will need this information to apply for a refinancing loan.
In the future, you will need to sign a loan agreement with another bank and pay off your debts. Here, events can develop in different ways, either the new lender will transfer the borrowed funds to pay off the debt, or the borrower himself will close the existing obligations after receiving the cash, and then provide a document confirming the intended use of the funds.
Important! If the allocated funds within the framework of the refinancing program were not used as intended, the new lender will raise the rate.
Is it profitable or not
If we talk about whether refinancing a consumer loan is profitable, then the question is controversial. More precisely, the benefit will depend on several factors:
- the interest rate of the refinancing loan and the total cost of the loan;
- loan term;
- the size of the monthly payment;
- insurance conditions.
That is, when choosing an offer that is profitable for yourself, you must first of all pay attention to the percentage that the bank offers as part of the consumer loan refinancing program. Among other things, it should be borne in mind that the interest rate does not determine the full cost of the loan, because the lender charges additional fees for their services, including opening and maintaining a credit account. Therefore, first of all, ask your loan officer what is included in the full cost of the loan, and what annual percentage will be in effect in the end.
Further, it is worth paying attention to the terms of the loan, because the longer the loan term, the more you will overpay to the bank. Before applying for a new loan, ask a loan officer to draw up a preliminary payment schedule for you and compare the amount of overpayment on current obligations and on a refinancing loan. The fact is that refinancing is unlikely to be profitable if you overpay more on it than on existing loans.
No less important for the borrower will be the amount of the monthly payment. As a rule, if you use a loan for refinancing, it means that you have to pay a smaller amount every month, otherwise it will be inappropriate to carry out refinancing. By the way, do not forget that all banks insistently offer to take out personal risk insurance in an accredited company or subsidiary. You can opt out of the insurance policy, but the bank may increase the annual percentage. And if you agree, you will have to pay for the policy in a lump sum for the entire crediting period.
Advice to borrowers! If you repaid a bank loan ahead of schedule through on-lending, then you have the opportunity to return part of the insurance premium for the period during which, in fact, you did not use the borrowed funds.
Program selection
Many commercial banks provide this service on different terms. To understand in which bank loan refinancing is more profitable, it is worth comparing several offers. Namely, to conduct a review of offers, rates and requirements for borrowers.
Rosselkhozbank
Here you can refinance a consumer loan. Loans from other banks for a total amount of up to 750 thousand rubles without collateral and up to 1 million rubles with a pledge or surety are subject to refinancing. The maximum term is up to 60 months. As for other conditions, the client has the opportunity to choose a debt repayment scheme: annuity or differentiated payments. At the time of filing the application, the loan repayment period in another bank must be at least 1 year from the date of the first payment without delays.
As for the interest on the loan, the minimum value is 12.9%, which increases depending on the term of the agreement and the category of the borrower. Favorable conditions can be obtained by employees of state institutions. The base rate is increased by 6 points when the insurance is canceled.
VTB 24
The bank can refinance up to six loans opened in other credit and financial institutions. Interest rate from 13.5% per year, with the amount of debt above 600,000 rubles and from 14 to 17 percent with an amount of less than 600 thousand rubles. The maximum loan size is up to 3 million rubles, the term is up to 60 months.
The nuance of the service lies in the fact that with the help of this program you can choose two options: a decrease in monthly payments by increasing the loan term, or a decrease in the total overpayment by reducing the term of the contract. In addition, you can borrow additional funds for personal needs.
The Bank does not refinance loans from banks belonging to the VTB financial group.
Interkomertsbank
Here, loan refinancing is carried out on the following conditions: rate - from 12%, term - up to 5 years, amount - up to 1,000,000 rubles, the number of loans is not limited. That is, here you can take one loan to pay off any obligations to banks, plus receive additional funds for personal needs.
As you can see, different commercial banks offer similar on-lending terms. That is, interest rates are not much different from ordinary consumer loans. The most profitable refinancing of a consumer loan will be provided that some of the conditions listed above are met. But in addition, the borrower can make on-lending even more profitable for himself:
- Contact the bank where you are already repaying the loan, many lenders are willing to meet respectable borrowers and can continue another loan with a lower interest rate, or extend the term of the agreement to reduce the financial burden.
- Before refinancing your loans, calculate the difference in payments and interest rates, perhaps there is no point in refinancing.
- Carefully study the terms of refinancing, banks may include commissions and various payments in the cost of the loan, which makes refinancing unprofitable for the borrower.
Thus, to summarize, the refinancing service is far from always beneficial and expedient for the borrower. If you are already paying a loan on favorable terms with an acceptable interest rate, then it is pointless to change the loan. Refinancing will be really profitable only if the rate on the current loan exceeds 25% or more.