Why people refinance (and it’s more common than you think)

Have you ever heard people talk about refinancing their lending, and wondered why they might be doing it?

Refinancing is something that many people do when they are in the process of repaying their loans. It’s often a practical decision that New Zealanders across the country make at various points in their financial lives, whether it’s to help them feel more in control of their borrowing, to pay it down more quickly or just to ease some pressure on the household budget.

What is refinancing, anyway?

When we talk about refinancing, we’re referring to replacing a loan with another one, usually on different terms. The new loan might be from a new lender, or it could be with your existing loan provider.

When does it make sense?

There are lots of situations where refinancing is a prudent thing to at least think about. Circumstances change, and if you’ve had your loan for a number of years, it might not be the most appropriate fit for you any longer.

Sometimes, people might have a loan with one lender but see that they can get better terms with another one, and their existing lender won’t matchthemt. Other times, they need to just update their lending and a refinance move is the most sensible way to tackle it.

What are some of the reasons for refinancing?

It might be financial, it might be lifestyle, or it could be something else entirely that makes refinancing a sensible step. Sometimes, it’s driven by a change in financial circumstances. Maybe your income has changed and you need to refinance to lower your repayments each fortnight or month. Or on the flipside, maybe your credit score has increased significantly since you took out your loan and you now have more options that you want to explore.

Other times, it could be due to life admin drivers. People who have several small loans sometimes find it easier to refinance them with a debt consolidation loan, which combines them into one that can be managed with one repayment. In other situations, people might have changes in life circumstances that require them to extend their loans, and sometimes refinancing might suit. Maybe you’re starting a family, buying a home or returning to work. Perhaps you’re starting a business or just planning to travel. Many life changes can make refinancing worth considering.

Proactive or reactive?

As with lots of financial decisions, it’s often easiest to make a decision about refinancing before you really need to. When you’re able to take your time over things, and make a proactive decision about what’s the most suitable solution for you, it’s often a smoother process than trying to react to changing circumstances that require action.

Taking charge of your financial situation can help you to make the most of what’s available to you, rather than simply rolling with and responding to what’s happening around you. Financial arrangements that were put in place years ago may no longer suit where you’re currently at in your life. A loan that was a great fit a little while ago may no longer be the most appropriate solution for you, and that’s normal.

You might choose to add refinancing into your wider financial health check. It’s often useful to regularly check in on your financial picture and identify things that could be adjusted. Reviewing and adjust lending arrangements alongside other things like investments and savings goals is something lots of financially aware people do from time to time.

Your existing provider or a new one?

Refinancing doesn’t have to mean switching to a new lender. If you’re happy with the lender you’re currently with, you may be able to refinance your loan with them. While refinancing isn’t always done because of hardship reasons, if you’re struggling with something unexpected that’s affecting your financial life, it’s worth remembering that all lenders have an obligation to consider applications made under hardship provisions.

Equally, though, if you think it’s time for a new direction, we can help you to look at your options and what else might be available that suits you.

Like to chat?

If you’re curious about what refinancing could mean for your situation, it’s worth starting a conversation. We’re here to help with any queries you may have.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.