Refinancing is the replacement of one debt for another; an instance of debt restructuring to gain a better deal, change the terms of a loan, or release much-needed cash or equity into a personal pot or business account.
It is also a useful way for business owners and entrepreneurs to manage their debts and assets, and to focus on the more important task of running a company or venture. Replacing one loan with another could be the best financial decision a fledgling business will make during its early days, but it’s essential that the process is understood properly.
1. Why do people choose to refinance?
There are numerous reasons why small business owners and those concerned about their personal assets might choose to refinance. Indeed, it’s one of the most popular ways for entrepreneurs and startup companies to finance their business; these days many small business owners operate from home, or use their property as a business asset. It makes sense, then, that they’re making the most of the financing available to them – and getting the best deal into the bargain.
Refinancing can help business owners to consolidate multiple loans, manage their business debts, lower their monthly repayments, reduce interest rates and improve their credit score, as well as enabling small businesses owners to focus on growing their venture.
As with many financial decisions, refinancing should be properly researched. This article will focus on just a few of the questions that should be asked before a person chooses the route of refinancing.
2. What to consider before refinancing?
There are plenty of considerations before a person refinances, least of all the outcome they’re hoping for, or expecting. Will refinancing benefit their personal assets, or the business they’re steadily growing? What are they hoping to achieve via refinancing? The answers to both of these questions should help the confused to clarify their aims, and decide what to do next.
Other questions that should be asked prior to refinancing include…
3. Is this really the best deal?
Before refinancing, a person needs to understand the interest rates and remaining term on their existing loan or mortgage; is switching the best way forward? While many entrepreneurs and small business owners have discovered the benefits of refinancing an existing loan or mortgage, it’s important for them to research the best deals available. Shopping around for finance is a long, arduous task, but it’s an essential one if a person stands any chance of getting a better deal.
Now is also the time for a person to be asking how much they can afford to pay each month, and to take a long, hard look at their finances. Refinancing is an opportunity to gain better control of their money, so a person should be realistic about their circumstances.
4. Do I understand the terms and conditions?
It’s all very well signing on the dotted line and looking ahead to the future, but if a person doesn’t really understand what they’re getting under their new terms and conditions they’re setting themselves up for a fall.
How will the act of refinancing, and the terms of the new loan, affect their credit score? Are there flexible repayment conditions, or are they bound to a fixed term agreement? When it comes to refinancing there are a lot of things that need to be understood, including interest rates, fees, and pay-off amounts, as well as fines should those terms be broken. There are facts and figures to be analyzed before any final decisions are made.
5. Who can I turn to for advice?
Anyone hoping to refinance a home loan to release equity into a business venture, or raise funds for their personal pot, should ensure that they’ve sought advice on the subject before making any final decisions. While refinancing a home loan can be incredibly beneficial, it’s important for people to arm themselves with as many facts as possible.
Many choose to seek guidance from their original lender first; it’s sometimes possible to renegotiate the terms on a loan, or to switch to a similar product. However, seeking independent advice, such as that of a comparison company, is often a far better place to start. Without allegiance or pressure, a person can find out what refinancing means for their circumstances – and for their financial future.
Takeaway
Although refinancing can be a great way to save money and better manage finances, a person should consider every possible outcome of the process, and the terms of the deal, before signing on the dotted line. It’s certainly true that there are many benefits when it comes to refinancing. However, anyone thinking about refinancing would do well to seek financial advice before deciding once and for all if refinancing is the way forward.