March 12, 2022

Refinansiering of Consumer Debt

Are you shopping for a loan to refinance debt? Norwegian banks are no strangers to providing such loans, even to borrowers with payment remarks.

There are various options as far as refinancing is concerned. Individuals can provide housing as security, use a guarantor, or apply with a co-borrower. Every alternative has its own benefits and drawbacks. The more offers you receive, the more likely you are to get favorable terms.

The following guide will introduce you to the topic of refinancing consumer debt.

Types of banks used for refinancing

There are three types of banks that provide refinancing options. Their requirements and conditions aren’t exactly the same. Hence, the choice of a bank should depend on a few factors. Individuals can choose from savings, consumer, and specialty banks. The lowest-cost alternative for refinancing significant consumer debt is to apply for a mortgage.

Nevertheless, the largest part of savings banks tends to reject applications with payment remarks. Conversely, consumer banks are known for offering unsecured loans, which are convenient for refinancing debt from credit cards and small consumer loans. Most of these banks will reject applications with payment remarks as well.

Fortunately, there are specialty banks that provide clients with payment remarks with the chance to refinance. There are different options for refinansiering av forbruksgjeld (refinancing of consumer debt) for borrowers to consider. The only challenge for borrowers turning to specialist lenders is to provide security. Savings banks aren’t an alternative for most individuals with payment defaults and those with no mortgage.

If you happen to own a home or have a guarantor, the most affordable option for you is to refinance through a specialist bank. The reason for this is because the interest is lower compared to unsecured loans. In terms of the set-up costs, the expenses at specialist banks are much higher than those in consumer banks.

For example, the establishment fee of specialty banks is usually calculated as a percentage of the loan amount, which is at least NOK 20,000. On the other end of the spectrum, the establishment fee at consumer moneylenders is approximately 900 kroner. In case of a low borrowing requirement, unsecured loans can be cheaper compared to similar loans offered by specialty banks.

Furthermore, the lowest amount that clients can borrow from special banks is usually NOK 300,000. Consumer banks offer much lower sums, such as NOK 5,000 or NOK 10,000. Consequently, the former proves to be a better solution when the debt is high but you are able to provide security. In case your debt is low, consumer banks are more practical and cheaper alternatives.

Housing as a security

When refinancing with a specialty bank, your primary consideration should be the amount you intend to borrow. If the sum is higher than NOK 400,000, the lender might require to take over the complete mortgage. The loan will prove costly over time because of the high amount and interest rates. The interest offered by savings lenders with mortgages is between 1.65% and 3.5%. Specialty lenders offer an interest starting from 4.5%. Find out how refinancing your mortgage can save you money if you do it right.

Given this significant difference in interest rates, using a specialty lender isn’t recommended as a long-term solution. Once you restore control over your finances, you should do your best to move the mortgage back to a savings moneylender where the interest is lower.

When the borrowing sum is low, the lender can be kept from taking second priority on the mortgage you offer. The sum we are discussing is as low as several hundred thousand kroner. The main benefit would be not having to move your mortgage from one lender to another.

Moreover, you can borrow money for refinancing in return for the bank taking second priority in the mortgage. If using a guarantor, he/she can offer money as security instead of offering a mortgage. The sum should be deposited in an account that’s blocked, which can be accessed by the guarantor when the loan is eventually repaid.

The selection of specialty lenders offering loans for refinancing debt with payment remarks is limited. The loan sum and interest vary on a regular basis. The loan’s size is mainly limited by the market value of your home. Lenders allow individuals to borrow no more than 85% of this amount. The following URL, https://www.investopedia.com/ask/answers/072915/how-market-value-determined-real-estate-market.asp, provides a better understanding of how market value is determined in the real estate market.

In the event of providing holiday property as security, you will be able to borrow no more than 75% of the estimated value. In both cases, the property is expected to be appealing and easy to sell. The requirements are identical when the security is offered by a guarantor.

Unsecured loan refinancing

Refinancing with an unsecured loan can prove the best solution in cases when the remark comes from a credit or loan on a low amount. For instance, having a debt of 30,000 kroner can earn you a remark if not paid for a long time. In such a scenario, you should focus on repaying the amount you owe to the credit card company the soonest possible for the remark to be deleted. Afterward, you’ll be able to get the loan without any collateral requirements.

Refinancing with a partner

It’s common for spouses and co-habitants to take out refinancing loans together, which is particularly relevant when the credit is unsecured. The presence of a co-borrower provides the lender with a much lower risk of a potential default, as both parties are held liable for the repayment. The positive effect of having a co-borrower is increasing your chances of being granted a loan. The interest might improve as well.

There are approximately thirty banks in Norway that offer unsecured loans. Half of them impose limits of a maximum of NOK 500,000. About five of them offer sums up to 300,000 or 400,000 kroner. The interest varies between six and twenty percent. Interest rate calculations are performed by assessing the credit scores of applicants and estimating their ability to pay. Better rates are scored by having a high score. If the borrowed amount is approximately NOK 100,000, the effective rates of interest are from 12 to 14%.

When shopping for a refinancing loan, no offer should be skipped. The offers you receive will be different regardless of whether you borrow with security or without it. Make sure you send applications to numerous lenders and then compare the offers.