After 2016 and the entry into force of the so-called The Anti-usury Act has changed a lot on the non-bank loan market. The changes also affected people who are unable to pay their liabilities on time. It was established, among others the maximum amount of costs associated with a given loan. A popular method of dealing with timely repayment problems is to refinance a loan. Thanks to this, the company that granted the loan receives its money. Another lender makes a loan, making money from it. And the customer is happy that he has avoided the consequences of late repayment. What is loan refinancing? What should you look for when considering this solution?
Refinancing loans before and after 2016
Before 2016, most non-banking companies had in their offer a service that is an extension of the repayment date. This generated really big profits for lenders – it was the screens that earned the most. We are aware of cases in which non-bank companies offered to extend the repayment period repeatedly. The client, who even repaid part of the liability even every month, was getting into bigger debts. Commitments could often not be repaid on time. It was necessary to extend the return period again. This was the main reason for falling into a spiral of debt.
Only after 2016 and after the so-called The Anti-usury Act has changed a lot in this aspect. Postponing the repayment date for many non-banking companies turned out to be unprofitable, which resulted in the majority of entities resigning from this service. Why? Granting a loan alone exhausts statutory cost limits. In such cases, the extension of repayment obligations would have to be completely free or cost very little. Non-bank companies, looking for new sources of income, introduced a new product to their service. I am talking about a refinancing loan.
Customers who have problems with timely repayment can therefore:
- use the option to extend the repayment date (if the loan company offers such a service),
- take advantage of loan refinancing,
- ignore the problem – which we do not recommend in any case, because then the case may go to a bailiff.
Refinancing a loan carries relatively high costs. This concept is not the same as “extending the repayment date”. This is a completely new commitment. Therefore, before using such a solution, it is worth analyzing how much it costs to refinance a loan and whether we can afford it. In some cases, refinancing will be completely unprofitable, e.g. when the penalty interest for late payment is lower than the total cost of the refinancing loan.
Refinancing a loan – how much does it cost?
The most important refinancing issue is how much a refinancing loan costs. The main purpose of a non-bank company is profit. It is no wonder then that lenders want to make money on every customer. The group of the most reliable borrowers are people who have problems with timely repayment of another liability. In most cases, the only way out is refinancing the loan.
At present, refinancing costs are very similar to those before 2016 were added for extending the repayment period. They depend on, among others from:
- loan amounts – the lower the amount, the lower the refinancing costs,
- duration of the contract (for example, popular payday loans can usually be refinanced for 7, 14 or 30 days) – the shorter the period, the lower the total cost of the liability.
The refinancing period should be adjusted to your financial capabilities. Only in this way will we avoid having to look for another refinancing loan when it turns out that we are not able to pay the debt again on time.
How many times can you refinance a loan?
If the repayment was extended before 2016, companies offered the option of multiple deferrals to charge further fees. How is this refinancing? The law does not regulate the number of times you can apply for a refinancing loan. However, there are many loan companies on the market that offer this type of service. So it can be concluded that you can refinance a loan many times. However, is it profitable? Will this not contribute to the customer falling into a debt loop? You can have big doubts about that. One thing is certain – refinancing should also be covered by relevant legal provisions.
Refinancing a loan in practice
What does the loan refinancing process look like in practice?
- The borrower reports a problem with timely repayment and is willing to refinance.
- It is necessary to sign the relevant refinancing loan agreement (before this loan company must check the creditworthiness of the customer).
- As a rule, the borrower is asked to pay a commission to the account of the lender refinancing the commitment.
- When the money is credited, the non-banking company transfers the amount owed to the first creditor. Thus, the commitment to the first company is repaid.
- The customer must repay the next liability – already to the loan refinancing company.
Is it worth refinancing a loan?
Refinancing is the same as taking another loan. This is not always a cost-effective solution. A more beneficial alternative may be to look for a third-party offer and take out a normal loan to cover your old debt (e.g. a free payday payday loan). However, you should read the loan agreement carefully, as some entities stipulate that the money obtained from the loan cannot be used to repay another liability. Help in finding an attractive offer can help, among others online loans comparison.