Ever since we decided to bring Silicon Valley to the lending business, we kept looking for opportunities to help businesses lower their interest rate. This was especially true because we mostly work in subprime lending where interest rates are extremely high. Since we are able to offer businesses the wholesale rate from the lender, we figured that refinancing is a very important program that we absolutely had to launch.
While we offer a real tool to lower your interest rate, we also want to give you options to consider first. In this blog post, we will try to explain what refinancing is; what things are important to look when refinancing a loan, and most importantly how to get the maximum out of it. As always if you have any questions, concerns or comments, you can email us and share with us your ideas and thoughts.
First of all, let's figure out what refinancing is and how it works. Refinancing, in basic terms, is a loan that replaces your current loan and brings you some benefits with it. The most common benefit that comes with a refinanced loan is an opportunity to extend the term of the loan, lower your interest rate or your monthly payment amount. Refinancing is so widely used, in fact, the absolute majority of new loans at any given moment are refinancing loans.
☝🏻 Types of refinancing:
Refinancing is a general term, and the purpose or the final benefit of the refinanced loan usually determines its type. There is a couple of main goals of refinancing.
* 📉 To lower your interest rate
Lower Interest Rate - this is one of the most common types of refinancing. It is also the most common type here at Richie, mostly due to the fact that we work in subprime lending where rates and extremely high and fluctuate a lot. There are so many factors that could have influenced your initial loan and bumped its interest rate. The lender could simply overlook your deposit, your credit card utilization could have been a tiny bit higher than usual, or there could have been a negative day on your bank statement. As a result, you ended up having a loan 5% or 10% higher than it should be. If your financial situation improved or your credit score went up and you made your payments on time, the chances are you can get a lender to purchase your initial loan and get you a new one with a much lower interest rate.
You can lower your interest not just when your credit score goes slightly up. Because of huge technological advancement and innovation lenders and brokers are able to offer rates that were not even imaginable 10 years ago. Algorithms, machine learning, automation made it possible to do things seamlessly, faster and cheaper. Richie Lending, for example, spends 5 minutes to process an application, other brokers spent 11 hours, we use free robots, brokers use expensive human underwriters. As a result, we can refinance and cut up to almost 10% from virtually any small business loan.
* 🗓 To extend the term of the loan and reduce your payment amount
Extending the term of the loan is a widely used program that allows you to lower your payment and decrease pressure on your cash flow. There are essentially two main ways of doing so. First, for example, imagine you had a loan for 3 years and had already paid for one full year. However, you do not want to keep paying the same amount you paid previously. At this point, you can find another company to pay off the remaining balance on your loan and get you a new three-year term loan. While your interest might or might not stay the same, your monthly payment will be lowered by around 20-25%. That would be very helpful for your business cash flow.
Alternatively, if your credit score also significantly improved since the time you got the first loan, you can also just simply increase the term of the loan. For example, instead of 6 months, you can now have a year to pay off the loan. It will not just decrease the monthly or daily payment, it will also drastically reduce your APR.
❗️Things to consider:
Refinancing helps many borrowers but it is not always beneficial. There is a number of things to consider.
* Early repayment penalties. This factor is very common for subprime business loans, lenders simply want to have you stick with them and won’t allow early repayment. Luckily, we have a unique refinancing program for short term business loans and have the leverage to convince lenders to let you refinance the loan.
* Front-loaded interest. If you have a mortgage or a long-term loan, you pay interest before paying off your principal balance. As a result of refinancing you might end up paying double interest and eliminates the whole benefit of refinancing.
Just keep these factors in mind when you apply for refinancing. Luckily, Richie Lending’s Refinance Program is specifically designed to address these factors.
👻 How does the process work?
You may be surprised to find that it’s not a couple-of-emails-and-a-phone-call-or-two process. In fact, there may be more paperwork involved this time around than when you first got the loan. These are some important steps that the process requires:
1. Determine the goal. As we said earlier people use refinancing for a variety of reasons. Therefore before applying anywhere, understand do you want to lower your interest or extend the term of the loan. It actually never hurts to try and won’t affect your credit score if you do it through Richie Lending.
2. Research your current loan. You can make it much easier for yourself and your broker if you know all the details of your current loan. It is especially important for high-risk loans (merchant cash advances, short-term business loans), they might have early repayment penalties and some other “details” that might complicate the process.
3. Learn and improve your current credit score. While it is hard to improve your credit score by wide margins, it is definitely possible to tweak it by 20-40 points by paying off your credit cards or increasing your credit card limits.
4. Shop for your best mortgage rate. Luckily there are many choices to apply online and get offers instantly. Richie is also a marketplace for loans, here you can get the best rate from over 100 lenders.
5. Know your deal. Once you picked an offer that looks promising, you should research it and make proper calculations to determine if this deal is actually beneficial for you. Don’t jump blindly for any refinancing offer, you might be in fact paying more than if you keep your loan.
6. Submit the paperwork. Refinancing requires some work to be done. Lenders have to negotiate between each other and you might need to submit some extra paperwork to make sure the deal goes smoothly.
✅ Final point:
Today we spoke about refinancing. Our job here at Richie to make your process as streamlined as possible, however, you might want to refinance your elsewhere. Do not forget to keep our tips and this article in mind no matter where you decide to refinance your current business loan or whether you need it in the first place.