Consumer loans still constitute a rather small proportion of Norwegians’ total debt. However, both the authorities and the financial companies have expressed concern in this area, because the increase in consumer loans and credits is considerable. Therefore, the need for refinancing is also increasing. It will be the rescue when you want to avoid both debt problems and unreasonable borrowing costs.
Many benefits to take advantage of
There are essentially three benefits you will benefit from when refinancing consumer loans and similar credit products.
- Lower interest costs
- Fewer fees
- Better overview of your own finances
When you collect more consumer loans and credits, you will have better control over the economy. To reduce the risk of overspending and mishaps by dealing with only one creditor. When it comes to savings, these come not only in the form of lower interest rates, but also from lower fees.
The cost savings are especially true when it comes to small consumer loans. These can be just as expensive as interest-bearing debt from credit cards.
Therefore, small loans are often expensive
Small consumer loans have far higher effective interest rates than larger loans. This is mainly due to three conditions. First, the establishment fee and termination fees will have a strong impact on the effective interest rates. This is also related to the fact that the small loans have a short repayment period. In addition, they generally have higher nominal interest rates than larger consumer loans.
Typical fee costs are $ 700 in establishment, while forward costs usually amount to about $ 600 per year. A normal level of effective interest rates is usually between 25% and 35% for small loans. However, there are far more expensive examples than this. So-called micro loans can have effective interest rates of several hundred percent.
If you have a single small loan of a few thousand notes, refinancing becomes quite meaningless. That loan should be able to pay down through your earnings in a month or two. It is when we owe larger sums, and especially from several small loans, that refinancing becomes important.
How much you can save depends on both the number of loans and the cost of each of the loans. You can find that out by using the calculator. If you have several small consumer loans, and perhaps credit debt as well, it is not uncommon for debt costs to be more than halved through efficient refinancing.
With a loan for consumption it is easy to get into a debt trap. To ease the financial burden, consider applying for a refinancing loan.
Refinance of only one loan
For many, it will pay to look at refinancing in the same way that we often see on mobile or power subscriptions. These are products and services where we change supplier as soon as we find a cheaper alternative. If you have a consumer loan that will continue to run for a long time, check what kind of interest offers you can get from your competitors.
You can easily find out the total costs remaining on the existing loan. This compares to the offers you receive on refinancing. There are an increasing number of banks offering unsecured loans for refinancing without any setup fee. So you basically only need an improved interest rate offer for refinancing to pay off.
Here’s how to find the best deal
We always recommend that you obtain as many refinancing offers as possible. The applications are free and non-binding, regardless of whether you apply directly to the bank or if you use a finance agent. When you start the application process, there are some moments we think you should keep in mind. This will help you further reduce costs.
- Look for banks that offer refinancing loans with no setup fee.
- Look for banks with low term fees.
- Consider using a co-borrower (cohabitant or spouse) when refinancing.
Establishment and maintenance fees constitute large additional costs on consumer loans. Fortunately, there are banks that do not require such fees when refinancing.
Tighter competition in the market
Refinancing is currently in the wind. We have had a high level of borrowing in the country for a long time, and many have incurred high borrowing costs. The development can still be said to have had a positive side. We are seeing a trend where banks are tightening competition on loans for refinancing.
- Several banks now have zero entry fee on refinancing.
- Several banks offer refinancing for people with a payment note.
- Interest rates on refinancing are often better than on loans for consumption.
When you need longer downtime
Of course, refinancing is mostly about cutting total costs. For many, it is also a matter of having an economic life that is to live with. Therefore, it may be appropriate to pay down long-term refinanced debt, despite the fact that fast repayment pays off most.
However, getting a longer repayment period depends on the loan and type of debt you are refinancing.
New rules for repayment time on unsecured loans
The Financial Supervisory Authority of Denmark recently changed the provisions for repayment of consumer loans and credits. As a general rule, the new loan can not extend beyond your existing loan agreements. For example, if you have 7 years remaining on your loan with the longest repayment period, your new loan must be a maximum of 7 years.
The exception here is if your loans have all less than five years maturity. For example, if you have debts from 3 small loans that are expected to be repaid within five years, the bank can give you more than five years repayment time on the refinancing loan. The maximum repayment period you can get is regardless of 15 years.
Did not sleep for an hour
There is a lot of money to be saved for those who have a watchful relationship with their own finances. Among other things, refinancing is a measure that should be considered if you see that the debt is becoming difficult to service. When the collection warnings come, you’re really a little late already.
In summary, we recommend the following:
- Refinance on time to avoid debt problems.
- Refinance when you have multiple consumer loans or small loans.
- Collect all debts when you first refinance, including any credit debt.
- Follow the interest rate trend. It may be worth refinancing again later.