Quick loans are small loans that charge very high interest rates due to a high default risk. These loans are aimed at subprime borrowers and are intended to meet small emergency expenses. The maximum amount of money you can borrow through these loans is up to €1,000, which is required to be paid off in full on the due date once and for all. The repayment length of these loans is never more than a month.
Some lenders may lend you more than €1,000 with an instalment repayment plan. These loans could be quite challenging to handle. As a result, you end up rolling them over. Late payment fees and interest penalties quickly add up, accumulating the debt. Eventually, the debt becomes so large that you find yourself unable to settle it. Here comes the role of refinancing.
Refinancing involves replacing an existing loan with a new loan at new repayment terms. It is used as a solution to tackle insurmountable debt. You can have refinanced quick loans in Ireland, either from the same lender or a different lender.
For some lenders, refinancing means a rollover
First off, you need to understand how a lender refinances quick loans. There is a difference between a rollover of a loan and the refinancing of a loan. The former involves extending the repayment period, giving you additional time to arrange funds to pay back, but it involves interest charges and late payment fees, while the latter means replacing an existing debt with a new loan at different repayment terms.
Rollover does not include borrowing more money. It involves only the extension of the repayment length. Remember that you should be able to pay in full the following month. A registered lender is not authorized to rollover the debt more than twice unless they are to exercise forbearance. Some small lenders mean rollover by refinancing.
So, if you have come across a lender offering you a facility of refinancing an agreement, they might mean that they will roll it over, which is only the extension of repayment length.
Lenders refinance instalment quick loans
Contrary to rollover, refinancing is a practice of taking out a new loan to discharge your existing debt, seeking a new loan at better interest rates. This concept is related to mortgages, where you refinance it as soon as a fixed interest-free period ends. Refinancing allows you to take out a new loan at a favourable interest rate, as you can easily demonstrate that your credit rating has improved by making payments on time.
If you have a large instalment loan, there is a possibility that a lender would help you refinance it when you are struggling with payments. However, it is essential that your credit rating is not bad at the time of refinancing. This is because your lender will peruse your credit rating in order to decide on interest rates and repayment terms.
This option cannot work to your advantage if you have already missed a payment on your existing debt. If some lenders manage to refinance your existing loans, they will charge high interest rates.
Use a personal loan to pay off outstanding quick loans
Refinancing of small loans is not possible this way, but you can take out a new loan to pay off your existing debt. For instance, if your quick loan has accumulated to a large size of debt, you can take out a new loan to discharge it once and for all. One of the benefits of using a personal loan to settle your existing outstanding quick loan is that you will get it at a different interest rate, and the other benefit is that you will be paying down the debt in fixed instalments over an extended period of time.
When quick loans are rolled over, the outstanding amount increases significantly, and yet you are expected to repay the debt in full on the due date. Of course, it makes it even more challenging to meet your repayment obligation. If you could not discharge the original debt in full in the first place, how would you be able to clear it when it is doubled or tripled in size?
When you take out a personal loan, a lender will peruse your credit report and income sources to ensure that you will not struggle to keep up with payments. Your credit score plays a vital role in deciding what interest rates will be levied. A poor credit history attracts higher interest rates. If your overall financial condition does not seem stable and strong, you might be refused a loan.
If you manage to obtain a personal loan to repay outstanding debt, you will find these loans much more manageable. You can easily make your budget around these payments.
A lender is not obligated to lend you an amount equivalent to the outstanding amount
While there is a probability that a lender could lend you money to repay your existing outstanding debts, it does not imply that this could be any amount under any circumstances. Quick loans and payday loans quickly accumulate due to late payment fees and interest penalties. By the time you decide to take out a new loan to pay them off, the outstanding balance may already have reached a three-digit figure.
Do not forget that your repayment capacity will be taken into account by your lender, and if they suspect your repayment potential, they will not be able to lend you that much money. In this situation, they might lend you less than you asked for. It means the rest of the outstanding balance will have to be paid by you separately from a personal loan.
This is not so favourable a situation as you still have some burden. Make sure that you will be able to manage both debts if that is the case.
The bottom line
Quick loans can be refinanced, but this includes only the extension of a repayment term, which can be done only twice, and you are expected to repay the debt in full. Borrow money only when you are entirely confident that you can pay it off.