If you take out a loan, regardless of the reason for it, you should ensure that you are able to make the repayments. Of course, there are always unforeseen situations when you take out a loan, and no loan company will expect your circumstances to remain the same over a number of years.
However, it is expected that you continue to make your repayments on time and in full each month, or your credit rating will be affected. If your situation does change for any reason, there are a number of ways you can reconsider your loan and finances more fully.
Below, we have given several choices you can consider more fully if your circumstances change after taking out a loan.
Financial Difficulties
If the change in your circumstances reduces your income, it can be a very worrying situation. There will be many aspects to consider when financial difficulties begin, and it can be tempting to continue to try to pay for everything.
However, ignoring the severity of the situation can be detrimental to you in the long term. The first thing you should do is admit, especially to yourself, that you are experiencing financial difficulties and begin to make a plan for resolving the situation.
Before considering your essential outgoings, such as loans, utilities, or other forms of credit, you should consider non-essential spending. Spending money on non-essential items such as evenings out with friends, tickets to events, and even gym memberships is the first thing that should be reduced.
Reducing your spending can be all that is needed if your financial difficulties are not severe. You can reduce your spending for a short or long period and continue to repay all of your financial responsibilities.
However, if this is not enough and you know you will not be able to reduce your outgoings enough to continue to meet your loan repayments, you should contact the loan company as soon as possible. The earlier you contact the company, the better standing you will have with them.
It is preferable that you contact the loan company before you miss a payment, as there will be no defaults recorded on your account. You may also be charged for every missed payment, which will increase your debt amount.
You should contact the loan company and inform them that your circumstances have changed and you are unable to meet the terms of the loan repayments. You should also ask for support. All reputable loan companies will have policies to follow for those who find themselves unable to pay and will do what they can to support you. It is in the company’s best interests to help you repay your loan in full; otherwise, they will lose the money you would have repaid. You should expect to be asked about your financial situation, income, and expenditure when contacting the loan company, as they will require this information to move forward.
The outcome of contacting the loan company will depend on your circumstances and their policies. You may be able to take a repayment holiday of a fixed period if your financial difficulties can be quickly resolved. A repayment holiday will have little to no impact on your credit file but will increase the interest you repay over the additional term.
If you are experiencing financial difficulties, you may also be able to negotiate a lower repayment over a longer period of time. The company will usually agree to this, with a view to increasing the repayments and decreasing the term if your circumstances change again.
An option such as this differs from refinancing your loan to access additional money. Repaying over a longer period to reduce the repayment is an option that is accepted to help you rather than something you can ask for if you are not in financial difficulties.
Many other options may be available to your loan company, so we cannot give an exhaustive list here. If you are presented with multiple options, you can request time to decide which is best for you. Alternatively, if the only option presented is still unsuitable, you should make the company aware of this.
Financial Restructuring
Financial restructuring is an excellent option if you can make repayments but need to rearrange how much or how often you make them. There are many websites, such as besterefinansiering.no, which provides information regarding the refinansiering av lån.
When refinancing a loan, there are several options that you can take. You can take out a new loan with another lender and use that to repay credit agreements with outstanding balances, such as credit cards. Refinancing will consolidate the outstanding balances of multiple sources into one lower repayment each month.
When restructuring your finances, the aim is to reduce the amount you pay each month or the number of lenders on your credit file. The more lenders with outstanding balances on your credit file, the more difficult it can become to secure new finance agreements.
It is important when reviewing and restructuring your finances that you check your credit file and ensure that everything is showing accurately. We recommend that you do this check both before and after applying for a new loan.
Firstly, you should check that only the outstanding balances you have are showing on your credit file. Ensure that nothing you have previously paid off is still showing as outstanding. You should also formally challenge any incorrect information to have it removed from your file.
If you have open credit options such as credit cards or store card accounts with a zero balance that has remained unused for a long period, you should consider closing them. Closing unused credit accounts can, at times, help your credit score, but it can also reduce the chance of fraud on your unused accounts that are not checked regularly.
Financial restructuring is beneficial, but with many options available, it is best to take the time to choose the correct option for your circumstances.
Extending Your Loan
You may wish to extend your loan, either to reduce your monthly outgoings or to access more money for a purchase. If you have an existing loan and wish to purchase a new car or book a once-in-a-lifetime vacation, extending your loan will give you the ability to do this.
If you have a good credit score, you will be offered favorable interest rates. The interest rates on a loan are often far lower than the interest rates offered for car finance or interest-bearing purchase finance.
Extending the end date of your loan means you can often keep your monthly repayment amount similar while accessing the money that you need. You should check with your lender if this option is available to you.
You can usually check within your online account and see what the new rates and repayments will be based on how much you need and how long you wish to extend. Accessing additional money without having a second repayment is helpful for most people.
Extending a loan with the same lender means that although you will be taking a new loan agreement with the same lender, it will remain as one payment. Having one repayment means you will be paying significantly less per month for the additional money you are borrowing but over a longer period. If you only have a short period remaining on the repayments of your first loan, you should consider whether extending it is the right option. If you are able to get a lower interest rate with another lender for the additional money, you will pay less back overall. If this is possible, you can look to take a little extra from the second lender to repay your first loan early.
Closing Your Loan Early
If your circumstances change in a way that means you have more income than you expected, it is best to try to repay any outstanding financial agreements early if you can. Whether you are promoted, inherit money, or receive a bonus at work, you can use this money to reduce your outgoings in the long term.
Closing any fixed-term credit agreement early will usually carry a penalty; however, it will remain the cheapest option overall. If you repay a loan early, you may have to pay a month’s worth of interest as an early repayment fee, but you will not be charged interest going forward.
If you have a year or more left on your loan, one month’s interest is a small fee compared to paying any further interest on the balance of the loan. So, although you will be using some of the money that you have received immediately, it will be a long-term savings. Interest rates on savings in an account are significantly less currently than the interest you will be paying on money borrowed.
You can establish how much you will need to pay to repay your loan early by logging into your online account. You will either be able to see immediately what the balance is if repaid the day you log in or request a settlement amount to be emailed to you for the date you wish to pay the loan off.
Knowing how much the loan will be to repay early will help you to decide whether or not it is worth repaying early. If you have a small balance outstanding but can make more money by investing the capital you have received, it may be best not to repay early.
