In reality there is a tool you can, if not solve, at least to curb the problem, we are talking about the fact of refinancing a loan.
How to refinance a loan
Often in economics we tend to favor the term consolidation because it has a more precise technical meaning. Basically, the operation takes place as a subsequent bargaining, in which the two parties, the client and the bank, look for a solution that can guarantee the interests of both. The customer is usually found with more debts to be repaid and for this he asks to refinance a loan . It is not necessary that you contract with the original party that has access to the loan, it is sufficient that you relate with a professional intermediary who is credited to perform the credit function. For this reason, you can contact both a bank and a financial company. Consolidation results in a series of beneficial effects for all the parties involved. Starting from the debtor two fundamental advantages can be highlighted.
Refinance a loan: negotiating an interest rate
On the one hand, of course, there will be the negotiation of an interest rate that is usually lower than what was established in the contract negotiations. This will lead to a smaller installment as the interest portion will be reduced by the value equal to the difference between the initial rate and the consolidation rate. This type of savings can have a different effect on the value of the debt to be repaid, depending on whether the loan has been on for a short time or is almost expiring. In fact the installments are not all the same as regards their composition.
The first installments of a loan tend to have the most interest share of the principal. This allows the issuer of the loan to immediately acquire the cost of the transaction and to recover the capital subsequently with future installments. For this reason, if a refinancing operation is carried out in the first years of loan ignition, one will obviously obtain a greater advantage deriving from the progressive reduction of all subsequent installments. In the final phase, however, the saving will be considerably lower, such as to make the operation useless.
The re-treatment of deadlines
Another very important aspect, in favor of the debtor and which we often tend not to consider sufficiently, is that deriving from the re-treatment of the deadlines. In fact, with the consolidation of the loan, the deadlines within which the principal will be repaid are prolonged. This allows the residual debt to be spread over a larger number of installments and, consequently, each installment will have an even smaller amount.
The unification of the installments
Finally, there is still a very important aspect, namely the unification of all the installments. In fact, the debtor who has contracted more debts, can take advantage of being cumulated all the installments in a single monthly solution. This allows you to keep your expenses under control and never forget the payment of an installment. The savings are certainly present in an operation of this type, however it is always good to make provisional accounts that allow you to realize what amount you are talking about.
Managing your debts better is certainly important and paying a lower installment is certainly a valid help, but every financial transaction must always be well reasoned in such a way as to never have any unpleasant surprises. Now we see the implication of the operation regarding the interests of the credit institution. Surely we must also include customer satisfaction among them. In fact, in a historical moment like this, in which trust towards banks and financial companies is at an all-time low, creating a satisfied clientele of its services is essential for securing a prosperous future.
Refinance a loan: the lender’s profits
However, of course, the grantor’s earnings do not end here. Who lends the capital must always carry out complicated calculations of convenience that allow him to understand if the operation will have a positive value in the long run. This means that the bank or issuing company must consider the risk of insolvency of its debtor. For example, lending money at a high rate does not necessarily provide an equally attractive return if the debtor is in a position to not pay. Although it is true that the creditor has useful tools to recover in any case what is due, it is equally true that these operations are never simple and, in addition to taking a long time, may not provide the desired results. For this reason, it is also in the interest of the bank that the customer is always in optimal condition to periodically pay his installment.
Consolidation allows all this thanks to different payment methods that will be decided at the time of negotiating any refinancing request. If the debtor is an employee, the method of assigning the fifth salary is usually used. This operation, as can easily be seen from the name, allows the creditor to make a deduction from the source on the monthly salary of the debtor. The latter will then see his salary credited net of debts to be paid. In this way there is no thought for the employee to pay his installment every month and, at the same time, the creditor will always be sure to receive what is due to him.