When Should You Consider Refinancing Your Loan?

  • Updated on: 1 Feb 2024
  • Published on: 16 Nov 2021
When Should You Consider Refinancing Your Loan?

The pandemic has caused a stir in the job markets. Many have faced pay cuts, and some even lost their sources of income. These factors have increased personal debt even more, with most professionals struggling to pay off their existing loans. Recently, many financial organizations have lowered the interest rates for their loan products. If your loan EMIs take more than 40% of your monthly income, you should strongly consider refinancing. This gives you more breathing space and provides opportunities to invest the money you save with lower loan EMIs. Most financial organizations provide information about their loan products on the internet. It would help if you understood how to get loan online to take advantage of refinancing.

What does refinancing mean?

A loan ‘refinancing’ – as the word suggests – is the process to replace your existing loan with a new one. You refinance your loan from one financial institution to another under different terms. Refinancing is an excellent option to lower your loan EMIs. Hence, you should choose a financial institution with lower interest rates and better value-adds. Overall, loan refinancing is solely targeted towards improving your financial situation.

Details of a refinancing process vary from lender to lender, as well as the type of loan. But the general steps include:

– You already have one or more existing loans and would like to take some payment burden off them.

– A lender is providing better loan terms, including lower personal loan interestand other value-add. Your search for how to get loan online lands you to one or more of these lenders, and you select one that is best for you.

– You apply for the new loan with the same amount as the remaining loan amount you would like to pay off.

– You can either opt to pay off the loan with this new financial organization or go for another refinancing when the opportunity arrives.

Why should you think about refinancing?

As lucrative as it may sound, loan refinancing is a tedious, time-consuming process and is expensive. It is also not a win-win. While you gain many new features with the new lender, you lose any good value-adds your outgoing lender gave. Even with these caveats, you should strongly consider refinancing your loan for these benefits:

You save money

Refinancing your loan is sure to save you money in the form of lower interest payments. If you choose a product that offers the same loan, albeit, with lower interest rates, your EMIs become lower too. Especially for long-term loans, the lower interest rates with refinancing can save you a lot of money.

Lower monthly payments

Refinancing your loan with another lender with lower interest rates translates to lower monthly payments. This takes the burden off your back by reducing financial stress. You also free up your budget for other expenses and investments with the money you save. As a result, your cash flow becomes easier.

Also, refinancing grants you more time to repay the remaining loan amount. Since your loan balance is lower than your original loan amount, this results in lower EMIs. However, you should remember that more repayment tenure means you pay more overall in interest. Therefore, personal loan interest is generally higher and requires more scrutiny while refinancing.

Option for a shorter loan term

When you refinance your existing loan, you have the option to pay the remaining amount in a shorter duration. Most home loans benefit from this option, since they are taken for 20 years or more. For example, your existing 30-year home loan can be refinanced after 5 years to a shorter, 15-year option, saving you 10 years’ worth of interest payment. This makes more sense if you are okay with making larger monthly payments to pay off your debt sooner.

Consolidating your debt

If you are struggling to pay off multiple debts, consolidating them into a single loan and refinancing it may help. If you refinance with a lender with lower interest rates, the monthly payment can be significantly lower. Personal loan interest rates are higher and can benefit from debt consolidation when clubbed with other loans.

Improvement in overall financial status

Your ability to pay off the required Equated Monthly Installments (EMIs) is directly proportional to the changes in your income. So, in case you have been unlucky to face a pay cut, Refinancing helps shave off your financial obligations.

The converse is true as well. You may opt to pay off your debts faster, if you see an improvement in your financial status. Refinancing gives you the flexibility to choose a lower repayment tenure in this case as well.

What stays unaffected when you refinance your loan?

While Refinancing can lower home, car, or personal loan interests and personal loan EMIs, some things remain unchanged.

Debt remains unchanged

Your loan balance does not change even after refinancing. Unless you take more debt at the time of refinancing, you still owe the same amount to the lender. Knowledge of how to get loan online or how to refinance simply opens ways to lower the payments. However, the overall loan obligation stays unaffected.


If you took your previous loan against collateral, the same would be applied for the new loan. So, for example, if you refinance your home loan, you are still liable to lose your home in foreclosure if you cannot pay the EMIs. Likewise, for car loan refinancing, your car or bike can still be repossessed by the lender if you default on payments.


Refinancing your existing loans does not mean your monthly repayment obligations go away. Instead, you gain the ability to lower your EMIs. Ultimately, how much you end up paying per month depends on the interest rate, loan amount, and repayment duration.

Some other things to remember before you refinance:

– You should consider refinancing your loan during the early stages of its tenure.

– Just knowing how to get loan online is not enough. Read thoroughly through the brochures and gain knowledge and clarity about different aspects of the prospective new lender. Understand different fees associated with the loan transfer process.

– Ensure you retain an impeccable repayment record. This increases your chances of getting refinancing approval across a broader range of lending organizations.

– Remember that your new bank or lender treats a refinancing request as a fresh loan application. Be prepared and patient to go through the same rigmaroles one more time.


In this day and age of financial uncertainty, reducing your debts is of the utmost priority. Refinancing provides you an option to lower your monthly payments, increasing savings in turn. You do not need to turn to traditional banks for this, however. Instead, new lenders like Early Salary are coming forward with their personalized loan and salary advance products.  Searching for ‘How to get loan online will get you knowledge of these new-age lenders and leverage their advantages.


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