One method to improve your financial status is to refinance an unsecured loan. Individuals with an unsecured loan may be hesitant to refinance. They may find themselves asking numerous questions such as “When should I refinance?” and “How does refinancing work?”. Despite the common hesitations, refinancing unsecured loans have the capability of lowering your loan to value, therein strengthening your financial status. To see if financial improvement is possible in your situation, take these five steps to learn how to refinance unsecured loan to value.
Check Your Credit Score
Before refinancing, you need to check your credit score and report. Ideally, you want to ensure you will qualify for a lower rate than you are currently paying. Those with excellent credit scores typically achieve these lower rates. Use a calculator online to receive estimates on a new APR. If your new rate is not significantly lower than what you pay now, it may not be worth it to refinance. Alternatively, if your credit is good enough to qualify for a better rate, then you should have sufficient reason to investigate refinancing.
Meet Minimum Home Equity
It is generally recommended to meet a certain home equity value before you refinance. A 20% equity in your home, or a loan to value of 80%, is touted as the standard across lenders. Although it is possible to obtain a refinance with a greater loan to value than 80%, you will likely face higher interest rates and fees. Lenders will also require you to take out mortgage insurance with a greater loan to value. The lower your loan to value before you decide to refinance, the more room you have to refinance. This is why meeting a 20% home equity is recommended as a minimum before you attempt to refinance unsecured loan to value.
Evaluate Prepayment Penalties
The next step before refinancing unsecured loan to value would be to evaluate whether you will incur prepayment penalties. If your loan has an expensive fee that comes from prepayment, then it is in your best interest to avoid that fee. However, savings are still possible despite prepayment penalties. Calculate the savings you would see from refinancing, then subtract the prepayment penalty fees from them. Once you evaluate your prepayment penalties, you can begin seriously considering whether you will refinance unsecured loan to value.
Determine An Affordable Payment
Now that you are prepared to refinance, you must determine what you can afford to pay per month. Your new lender will use this figure to help calculate your APR and loan term. The less risk potential lenders see, the more attractive you are to them. Additionally, your loan term will directly influence your total savings. The same goes for your refinance rate, which means that it is in your best interest to find the best rate possible. To achieve a strong loan to value from your refinance, determine the highest yet affordable figure for your payments.
Compare Refinance Rates Among Lenders
Your final step before refinancing is to compare offers from different lenders. Take all the variables into account. Compare the APR, monthly rates, origination fees, and loan terms. Pull out a calculator, and calculate your final payment for each offer. Which one nets you the greatest savings in the end? Carefully compare the rates among lenders, and you should have little trouble improving your financial situation when you refinance unsecured loan to value.
Remember, it is a step-by-step process to determine how you can refinance unsecured loan to value to improve your financial status. Foremost, check your credit score to ensure you can qualify for lower interest rates. Ideally, you will want to have a favorable loan to value ratio already before you refinance. Evaluate whether your current loan has prepayment penalties, and if they are worth incurring the cost to refinance. Examine your records, and calculate what you can afford to pay so you receive more attractive offers. In the end, compare the offers you receive from various lenders to pick the best one. If you carefully follow these steps, you should be able to refinance unsecured loan to value, and successfully improve your financial status.