When to refinance the Payday Loan agreement?
Thinking of refinancing your payday loan contract? The first step in getting the right decision is to understand when refinancing is most advantageous. But for this, it is necessary to assess whether it is even possible to refinance with the contracted bank.
When is the right time to refinance?
Is it time for you to refinance a payday loan? Find out now. Refinancing the loan agreement may be an alternative when:
- the payable margin has already reached the 30% limit for loans;
- There is a need for extra money, but the contractor does not want to make a new loan;
- There is interest in reducing the portions of the current contract.
However, this option is not recommended or should be further evaluated when:
- The contract is already close to full discharge;
- The new term proposed by the bank is not feasible or longer than desirable;
Remember that refinancing will maintain the commitment of income for the term of the new contract. This way, if you already have the consignable margin committed, you will not be able to apply for a new loan.
What is payday Loan Refinancing?
Another important point is that to refinance the current contract you must have paid off part of its value. Conditions may vary from institution to institution. Generally, the minimum amount paid is on average 20-30% of the total contract value.
Both LOTS Withdrawals and Pensioners, as well as Public Servants can refinance the payday loan agreement.
How does LOTS loan refinancing work?
Refinancing a payday loan works in practice in a very similar way to taking a new loan. With the advantage of already having a payment history and relationship with the hired bank.
By refinancing the contract, LOTS Withdrawals and Pensioners can pay off the remaining balance, receive the difference (change) and return the debt to its original term. Remember that any contract change may change the amount of the installments to be paid. The consequence of this is that the amount of payable margin that will be used may also vary. Therefore, all refinancing is also subject to consignment margin confirmation.
Here’s an example to understand this operation more clearly:
Initial loan (original debt):
- Amount received: $ 7,000
- Term: 72 months
- Remaining amount: $ 1,099.00
- Percentage of installments paid: 30%
- Interest rate 2.04% per month
If at the time of renegotiation the bank has a lower interest rate and the same Total Effective Cost (BET) is maintained, the value of the installments may be lower. Smaller installments release consignable margin.
- Customer requests refinancing of $ 7,000
- The bank settles the remaining $ 3,659.94
- Term: 72 months
- The change will be $ 3,340.06
- New interest rate: 2.00% per month
On the other hand, if the term is shorter, the installments will be larger and the payable margin may not be sufficient. Therefore, it is recommended to do a simulation before closing any deal.
The maximum installment payment period of the LOTS payday is 72 months and cannot exceed six years.
How Does payday Refinancing Work?
Refinancing the payday loan contract is quite simple. The process, which can be done online including, is the same as the LOTS payday and the prerequisite is to have on average 20-30% of the paid installments.
The differences are due to the maximum nominal interest rate and the payment term. The payday interest rate for Public Servants is 2.05% per month and the term is up to 96 months. Understand which benefits LOTS beneficiaries and Public Servants have when refinancing the payday loan agreement.
What are the advantages of refinancing the loan agreement?
Refinancing or renewing the current contract may translate into some advantages for the borrower. Among the most common are:
Flexible payment terms
If the value of the loan agreement is above the current financial conditions (although it is automatically deducted from the salary or benefit), refinancing can increase the repayment term.
With this, the term becomes longer and the installments tend to be reduced, that is, you will pay less, but for a longer period. Remember that larger contracts will compromise margin and income longer as well.
In the event of an emergency, refinancing may be a more practical alternative as it deals with the same bank.
With the debt taken to its original maturity, the difference between what has already been paid and paid back comes back as change. Thus, there is no need to make a new loan.
Unification of Debts
Some banks allow you to refinance and bundle all debt into one contract. The caution in this case is to be careful that, in a new negotiation, the combined installments fit the monthly budget.
With this, the borrower also has greater visibility on active contracts. Although contracts must be on the paycheck or monthly LOTS statement, because of the automatic discount, the unified view can facilitate financial planning.
Money for those with no consignable margin
Anyone with no margin available cannot get a new loan. Two common alternatives in this case are refinancing or credit portability. By refinancing the loan agreement, the bank releases the amount between the repaid and refinanced difference.
In portability, debt is usually kept with the same current term, but it is possible to carry and refinance debt in the new bank. For this, it is necessary to consult the credit policy of each institution. So now that you know when to refinance the payday loan agreement, you can consider this option in your next financial assessment. Consider the advantages and disadvantages before making your decision.