One of the options offered by different financial institutions when we are late in the payment of our loans or credits, is to refinance a debt. But is this the most convenient?
What is refinancing a debt?
The option to refinance is a benefit granted by financial institutions when you cannot assume the payment of your debt. Unlike other solutions, such as rescheduling, refinancing affects the debtor’s credit history. This is because part of the debt in question is already past due. Next, we will tell you more about what it means to refinance a debt, when to do it and the conditions that you must meet to request it.
What does it mean to refinance your debt?
By accepting to refinance your debt, you are also agreeing to increase the term of the credit, so you will also extend the payment of your interests, as if that were not enough, the percentage will also vary. In addition, the entities that offer you to refinance usually request an amortization that represents a percentage of the balance already overdue.
Another problem with refinancing is that your credit rating will change from “normal” to “with potential problems” so financial institutions will think twice before approving you for a credit or loan in the future.
Conditions to request to refinance a debt
As mentioned before, there are a series of conditions to be candidates for refinancing, these are:
- Being late in paying the debt.
- Pay the amount of the overdue debt.
The best time to refinance
Although refinancing is not recommended, it is always a better option than simply stopping paying the debt. In the following cases, refinancing can be considered a viable alternative:
- You have over-indebtedness and problems to keep paying.
- You lost your ability to pay.
- You consider that you will have problems to regularize your payments.
Other options besides refinancing
There are other options, in addition to refinancing, if you fell behind in paying your debts, for example, the program MY BOARD of AlDía. With this program we group people who have the same problem as you, but who want to cancel their overdue debts. By gathering them together, we negotiate better conditions for the payment of your debts, while you save in an individual protected fund to later pay off the debt. Contact us for more information!