The Advantages and Disadvantages

By Ezilon.com Articles

The Advantages and Disadvantages


There is no certainty about our financial future. No matter how hard we strive, no matter how much effort we invest to secure stability for ourselves and our families, there will always be some variables that will come to play and disrupt whatever expectations we have of an obligations-free existence.

Most of us would be left with no recourse but to enter into a loan agreement with a lending institution at one point. Much as we would try to protect the integrity of our budget plans, there are still some things that are beyond our control. Emergencies for example, that necessitate expenditures way above what we have planned.

And when these loans become due and demandable, yet we don’t have the means to pay for them, what are we to do? Should we forever avoid the collection agents that would be sent by the lending institution? Should we allow it to ruin our credit score and jeopardize our ability to be granted another loan elsewhere, or worse, our chance to be employed in a wonderful job?

Thankfully, when the chips are down come the time that we have to settle our financial obligations, there exists another option. We could choose to refinance our existing loans. Refinancing a loan is quite simple in principle. All you need to do is to secure another loan to pay off the old one. The end result is a new loan with an extended maturity date.

There are a lot of advantages that can be derived from loan refinancing. Let’s take a look at some of them.

• Loan refinancing, as we have previously discussed, would extend the maturity date of your previous loan. This is because the new loan would govern when the same would be due and demandable, and the previous loan would be considered extinguished for all intents and purposes.

• The new loan can have a lower interest rate than the previous one. This would make things easier for your budget. You won’t have to endure a rapidly ballooning obligation as the new loan would be less onerous to comply with.

• Debt refinancing can also make your payment schemes simpler. For example, you have many existing loans. Instead of dealing with multiple parties, you could get one loan to pay them off, and you’ll only have the new loan to contend with.

Don’t get your hopes up for debt refinancing that quickly, however. This process is not without its share of disadvantages. Let’s take a look at them so that you’d be guided properly in determining if this route is the right one for you.

• Paying a smaller interest rate for the new loan is not guaranteed. Sometimes, the accumulated percentage for the new loan would be bigger than the sum total of the interests you have been paying for the old loan or loans.

• It would be difficult to get a new loan if you have existing loans to contend with. You would have to find a lending institution that specializes in refinancing subsisting loam or loans. Existing loans leave a mark on your credit history, and many lending institutions would be wary of the same.

• And in the event that you would find a lending institution that would be willing to refinance your existing loan or loans, chances are, it would consider you as a high risk investment, what with the inability you have shown of failing to pay off your subsisting loan or loans. As such, a new loan may be granted only if you would assent to relatively high interest rate.

Debt refinancing, however, remains a viable option, for the extension of the due date of the existing loan or loans more than anything else. If you feel that you’ve reached the end of your rope and debts which have matured are adding to the weight you’re carrying, then it might be wise to consider refinancing the same at the soonest possible time.

Otherwise, do try your best to pay off your existing loan or loans, as this would be the safest way to preserve your good credit score.