Loan refinancing — is it beneficial for the borrower

The refinancing mechanism for the bank and the borrower

Let's figure out whether refinancing is profitable for the bank itself, as well as for the borrower. If the borrower fails to fulfill their debt payment duties, there is a risk that their data will end up in the credit history bureau (CHB), where they get the status of a borrower with a bad credit history. This means that in the future, no bank or financial company will issue a credit or loan.

The general refinancing management mechanism provides for the following points:

• The bank helps the borrower repay the existing loan under certain conditions.
• The credit institution issues funds for refinancing, repays the existing debt, but a new interest rate is charged on the allocated money.
• Refinancing is essentially a new loan from which the countdown of new obligations begins.

Thus, the borrower's obligations on the old loan are fully settled, and they can take a new type of lending in the form of refinancing, where interest rates are provided and a new obligation arises to fulfill debt requirements on the part of the credit institution.

Is consumer loan refinancing profitable for the borrower if they took a loan or borrowing from another credit institution? Yes, the advantage of this scheme is that the bank repays the borrower's obligations to the bank that issued the initial loan. In this case, the bank sends funds to the institution that previously issued the loan or consumer loan. In this case, financial obligations arise already to the new creditor who arranged the refinancing.

Why a borrower chooses refinancing in another bank

Note that each credit institution sets its own interest rate. Naturally, it will be profitable for the borrower to work with the bank that offers a low interest rate and convenient settlement schemes. Here, refinancing involves fulfilling obligations to another bank, and the borrower starts working under a new loan where a low and profitable interest rate is set. Judging by reviews on whether loan refinancing is profitable, it can be determined that the bank offering a new credit line offers not only a low interest rate but also a long lending period. Naturally, the borrower's debt burden to the new creditor decreases.

Refinancing is beneficial for all three parties involved in the process. Thus, the first lender receives funds and interest in full, i.e., the actual profit from the previously issued loan. The borrower fulfills their obligations to the first lender and does not end up on the bad credit history list. The second lender acquires a new customer for their banking product in the person of the borrower. The latter lender can offer the borrower not only a long lending period but also a reduced interest rate on the credit line.

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Is there a difference between refinancing and a consumer loan?

Yes, there is such a difference, not only in terminology but also in the options and functional features of each credit line. Thus, a consumer loan most often implies the issuance of a small loan with a fixed interest rate. Currently, loans are issued with an interest rate of 1% per day (365% per annum). Refinancing has a distinct structure regarding interest rates. Most often, such a rate does not exceed 40% per annum. In addition, a consumer loan is issued in an amount up to 50,000 RUB for a term of 30 days, sometimes loans can be extended up to 1 year. Refinancing provides for issuing a loan in an amount up to 1 million RUB or more and for a term of up to 5-7 years.

When choosing a suitable refinancing project, we recommend paying attention to the following indicators?

1. The bank's rating in the TOP.
2. The maximum available amount for refinancing.
3. The minimum amount for refinancing approval.
4. Maximum loan term.
5. Fixed interest rate on obligations.
6. Borrower's age.
7. Decision making.

The financial services selection service will help you arrange credit refinancing at reliable Russian banks that have high reputation ratings and are always at the top.

TOP banks for loan refinancing

We invite you to review the top refinancing banks that provide services to borrowers at another financial institution.

Bank	Amount, RUB	Rate, %	Term
Home Credit Bank	1 million	From 11.9 %	Up to 5 years
MTS Bank	5 million	From 9.9 %	5 years
VTB	5 million	From 11 %	7 years
Alfa-Bank	3 million	From 9.99 %	7 years
Rosbank	3 million	From 10.99 %	7 years
Promsvyazbank	3 million	From 9.9 %	7 years
Otkritie	5 million	From 9.9 %	5 years
Interprombank	1.1 million	From 11.0 %	7 years
UralSib	2 million	From 11.9 %	7 years
UBRR	1 million	From 13.0 %	7 years

What to look out for when refinancing

When choosing a favorable refinancing program, we recommend paying attention to the following criteria:

• Interest rate size. Check for hidden fees and other refinancing costs.
• Availability of additional services. If you add additional services, be prepared to pay bank commissions.
• Insurance arrangement. Insurance is voluntary, but if you do take out insurance, by law you have the right to cancel the imposed service within 14 days.
• Collateral requirements. In this case, this indicator must be considered in accordance with the bank's lending terms and marketing policy. Clarify the collateral format; otherwise, there is a risk that if you fail to meet your loan obligations, you may lose collateral property characteristics.
• Getting a loan amount larger than that in the previous loan agreement with the bank that approved your first loan.

Remember that although refinancing is considered a 'lifesaver' for the borrower, there are pitfalls that include the following:

• The borrower must provide more documentation than is required for a regular loan.
• Refusal to refinance previous payments. Banks often refuse refinancing if there have been fewer than 6 payments on the previous loan.
• Mortgage refinancing always involves a higher rate, but this can be offset by additional conditions.
• When refinancing, the borrower bears the cost of an additional revaluation of the collateral, property rights assessment, insurance revaluation, etc. In other words, you will have to pay out of pocket for a new collateral and security assessment.

Before refinancing a loan, we recommend carefully rereading the old and new agreements and independently calculating the overpayment amounts; then it will become clear whether refinancing is beneficial and whether it makes sense to take a new loan at another financial institution.

Still have questions? Want help choosing loan refinancing and finding out whether it's worth taking a new loan at all? Contact our financial services selection service and make the right choice in solving your financial problems.