The interest rate on credit cards is usually high and can become a big problem over time. If you have a lot of credit card debts, we are certain that you’re looking for a way to settle them. One simple way to clear these debts and free yourself from the highinterest rate is to refinance.
If you’re wondering what this is all about, this article has all the answers. In this piece, we’ll provide you with a detailed guide to credit card refinancing that will ensure you know all you need to know to get out of debt. You can visit https://besterefinansiering.no/refinansiering-av-kredittkort/ to find out some of the best credit cards with low interest rates. Let’s get started, shall we?
Credit Card Debt Refinancing
Credit card debt refinancing is the process of taking a new loan with better terms, such as a longer repayment duration, fewer fees, and lower interest rates, to pay off credit card debt. Usually, individuals who practice this type of refinancing have several credit card debts that have accumulated high interest over time. Most of these cards have an interest rate of 20% to 25%, which is quite high. On the other hand, the interest rate on some refinance loans ranges from 7% to 10%, therefore, taking this loan is a better financial move.
Although we’re using the term “refinancing” in relation to credit cards in this article, the fact is that it can be used for all kinds of loans, including consumer loans, car loans, mortgages, etc.To get the best offer, only consider banks that have large loan offers. Any lender whose maximum offer is lower than NOK 50,000 shouldn’t be considered. The reason is that their interest rates are almost on par with credit cards.
How Much Can You Save by Refinancing?
When you refinance, the interest rate is lower, which means your overall repayment is lower. This is how refinancing saves you money. To give you a perfect picture of how this works, check out this illustration.
Imagine that the interest rate on your plastic money is 25%, which equals NOK 12,500. Since you want to pay off this debt, you decide to refinance. The loan offer is NOK 50,000 with an interest rate of 11%. When you calculate the interest, it amounts to just NOK 5,500, which means you get to save NOK 7,500.
Using another example, the interest on the plastic money is NOK 25,000 at a rate of 25%. A new refinance loan of NOK 100,000 has an interest of NOK 11,000 at an 11% rate. With this, you’ll be saving NOK 14,000. This is a big deal, if you ask us.
Benefits of Refinancing Your Credit Cards
The purpose of reconsolidating is to cut costs. If you’re still wondering what you stand to gain from taking this financial step, we’ll show you in this section. Let’s have a look-see.
Improved Loan Terms
One thing about a good consolidation loan is that the terms are better than the terms of your plastic money. By consolidating, you get better terms on repayment plans and costs. The repayment plan is usually longer, allowing you to make smaller repayments each month. This, in turn, will reduce your monthly financial burden.
Lower Costs
By this, we are talking about the lower interest rate compared to plastic money. Refinancing will help you cut costs by reducing the interest rate. This, in turn, has its benefits.
Save Money
With a reduced interest rate, you get to save money, as we illustrated earlier. Consolidating your debt means reduced fees and interest. This means you’ll deal with fewer costs going forward.
A Better Financial Overview
Most times, individuals who refinance have several active loans. As a result, they deal with multiple lenders at a time, which can be very confusing to keep up with. However, when you refinance, you’ll only deal with one lender. Therefore, you can easily keep up with payment deadlines, thereby leading to a better financial overview.
Pay Off Debt Faster
When you refinance, you get fewer costs going forward, as we said. Since you’re paying less, it means there is surplus money left after your monthly repayment. Instead of spending this money, you can add it to your repayment, which will allow you to pay off the new loan faster.
Pay Off Payment Notes
Individuals who have pending payment notes or collection claims can take advantage of a refinance loan. The surplus money you get can be used to pay off the payment notes. Doing this will lead to an improved credit score, which can be of great benefit when you apply for a loan.
Interest Rates on Refinance Loans
One of the main highlights of refinancing is that you get a lower interest rate. After all, it doesn’t make sense if you end up paying more than what you’re currently paying. So, what is the interest rate on this type of loan? The answer is that it varies.
Lenders determine the interest rate they charge each individual based on their credit score. You can read this article to learn more about credit scores. The better your credit score, the lower the interest rate you’re charged. This is why it’s important to maintain a good credit score.
The best effective interest rate you’ll find is 5%. However, what you’re more likely to get would be between 7% and 14%. Compared to the highinterest rate on credit cards, this is a bargain for most people.
Securing the Cheapest Refinance Loan
There are two types of refinance loans: unsecured and secured. Many individuals choose the former option as it doesn’t require collateral. While this is a common option, the interest rates are higher compared to the secured option, where you have to provide collateral.
So, if you are not satisfied with the offers you’ve found, you can still get better terms. All you need to do is put down your home as collateral for the loan. To get a refinancing loan with this option, you must meet these criteria:
- You must be financially stable to pay off the loan. In other words, you must have a consistent source of income to repay the loan. Although you’re putting up your home as collateral, lenders would prefer to get their money back instead of going through the stressful process of retrieving their money by selling off your home.
- You must agree to a likely 5% increase in the interest rate.
- The amount you take cannot exceed 85% of your home’s market value.
- Although you can still get the loan even if you have a payment note, not having one is very advantageous.
Alternative Banks You Can Apply for a Refinance Loan with Security
Recently, some new banks have focused on expensive debt and credit card refinancing. These banks, however, require security before they can provide this loan. So, just like regular banks, you must own the house you’re putting up as collateral.
Furthermore, total debt must not be more than 75% to 85% of the house’s market value. In some cases, these banks require further collateral, e.g., a guarantor. Banks that specialize in these loans include BB Finance, Svea Finance, Bluestep, and Okida.
How to Find the Best Refinance Offer
Many people already consider the deal a good one if the cost of the new loan is lower than the cost of their total current loans. However, you can get a better deal that will allow you to save more money. To ensure you find such offers, follow these steps:
Get Offers from Several Lenders
One common mistake people make is that they apply for the first offer they find, provided the cost is lower than their current debts. This is not a smart financial move. The ideal step is to get offers from several lenders and then compare them carefully.
Select the Offer with the Lowest Overall Cost
“Lowest overall cost” refers to how much the loan will cost after the debt is settled. During your comparison, you should be able to determine which offer is the lowest. Once you determine this, you can apply for it.
Select the Shortest Available Repayment Period
For all loans, the longer the repayment period, the higher the total overall cost. Therefore, to cut costs, we recommend you select the shortest available repayment period. However, if you discover that you can’t keep up with the monthly repayment, you can choose the shortest duration that you’re comfortable with.
Make Additional Payments when Possible
If you can, and we believe you can since you’d have surplus money after monthly repayment, make additional payments. Doing this will reduce the loan’s principal balance. Furthermore, it will help you repay the loan faster.
Conclusion
Credit card debt refinancing is the process of taking out a new loan to pay off the debt on a credit card. The benefits of doing this include improved loan terms, lower loan costs, you save money, better financial overview, faster debt payment, and paying off payment notes. When applying for this credit, ensure you compare several offers from different lenders to find the best offer.