Refinancing of Debts | What is the Refinancing of Debts?
On many occasions, family economies and companies have difficulties in facing the return of amounts owed to financial institutions. This can cause great problems for individuals or legal entities that have the obligation to repay a loan. However, there are possibilities such as the refinancing of debts that allow us to reach an agreement with financial institutions to improve our payment conditions.
What is the refinancing of debts?
The refinancing of debts is based on the request of a new loan that cancels the previous one that we can face and that has better payment terms to be able to return it. In this way, companies or people get favorable conditions that suit their needs and allow them to return the amount owed in the most comfortable way possible.
Debt refinancing can be done for two different purposes. On the one hand, as we have just commented, they are made to improve the current conditions of the current debt. You can change the conditions simply, or make a new loan that cancels the previous one and has better facilities. This option is usually made to increase the amount of credit needed, or to extend the repayment term and pay a lower monthly payment.
On the other hand, there is the possibility of refinancing to group all debts owed to a financial entity. It is what is known as debt reunification. This allows to unify all the fees that are paid in one. In addition, this fee is usually lower than all others together and with a longer return period. For this reason, the interest on the debt will increase considerably. The cost of this operation makes this the last option that we should study.