Refinancing is the term used when a business or a person changes a schedule for repaying a debt.
Effectively the old loan or debt is paid off and replaced with a new loan, which has different terms.
Usually this involves a longer term or maturity date.
Sometimes there’s a fee or penalty to pay as part of an early repayment unless originally agreed. This effectively is a penalty for the bank not receiving the interest payments they would of.
Refinance: A break down
Generally refinance is across the more common forms of consumer credit like mortgages, car and student loans.
In all circumstances the borrower agrees to make repayments based on a given interest rate.
When a refinance occurs the terms of the finance are altered.
In most cases the borrower would do this to help his or her financial situation, usually this involves a lower monthly payment or a longer term.
Why Should You Refinance
The most common reason to refinance a form of debt would be to lower the interest rate of the finance over the term.
Often better rates, incentives and deals are available for people to switch providers.
This can influence the decision to refinance, for example a zero percent rate for new customers.