While the term ‘refinance’ is most often used with mortgages, it can apply to any type of loan. Many borrowers have taken advantage of low interest rates to refinance their home loans, but some have also refinanced their auto loans, student loans, and even credit card debt via a home consolidation loan. For some, even renters, taking advantage of refinancing can be the key to getting out of crushing financial debt.
Refinancing, at its core, is simply taking out a new loan to pay off the old one. The new loan generally has better terms than the older one, making it much more beneficial to the borrower. In addition to replacing loans with similar types of loans — a new auto loan for an old auto loan, for example — borrowers can also take out consolidation loans that cover multiple types of debt, such as a single consolidation loan paying off an auto loan, student loan, and some or all of a borrower’s credit card debt. Doing so may greatly reduce the number of monthly payments a borrower has to make in addition to making their debt simpler to deal with.
Another reason refinancing more debt than just a mortgage can be helpful is when it converts that debt from a variable rate to a fixed rate. Doing so locks in the interest rate, guaranteeing that it will never increase. This helps the borrower better plan for the future by knowing that their loan payments will not increase.
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