A small loan is a type of unsecured loan, it can either be a credit facility taken out directly from a lender or debt incurred from credit cards. Additionally, people also incur small debts from purchases that are meant to be paid for in instalments.
These types of credit facilities are usually life savers and they come in handy in times of emergency. In addition to saving people in dire financial situations, they are useful for some expenditure that one may not want to dip into their savings or personal finances for.
Oftentimes when people buy stuff on hire purchase or instalment payment program, they do not consider this as any form of credit. But the truth is that they are loans in their own categories.
Due to the ease of getting these facilities, a number of people have found themselves in debt that they seem not to be able to get out of. That is why in this article, we would focus on refinancing of small loans (av smålån) as we believe that this affects more persons. But before we go further, we need to discuss what refinancing is all about
What Is Refinancing?
Refinancing is the process through which a consumer takes out a lump sum loan to pay off a smaller loan or several small loans. The new loan used to replace the original ones usually comes with better rates and terms.
Most often, people associate refinancing with mortgages but the truth is that this process can apply to almost any type of loan.
Why People Refinance Small Loans
People who have multiple debts have a lot of problem with either remembering to pay one or two of those debts or the interest rates are too overwhelming. This is why refinancing may be the way to go and the following are the 3 main reasons:-
Lower Monthly Repayments
When you have to make monthly payments on different loan agreements, the interest rates add up and the monies you pay out become increasingly costly. But when you have just one lump sum, the interest rate will not be as high and what you pay out monthly would not be too high.
Better Grasp and Management of Finances
Consolidating small loans helps a consumer to have a better grasp of their finances and manage it well. Paying off multiple loans can be confusing and borrowers sometimes forget to fulfil one or two financial obligations. But with a refi loan, the borrower has only one payment to make every month and there is no likelihood of forgetting the payment. They can even set the payments on automatic debits.
Greater Flexibility
Rules for refinance loans are slightly more flexible than regular consumer loans. One of the flexibility that consumers can get is repayment duration which can be extended to 15 years. This is really great for people whose monthly payments on their small loans are too heavy for their income. The longer repayment duration reduces the monthly payments that the borrower has to make.
Bear in mind however that the longer the repayment duration for a refinance credit, the more expensive the loan will be in the long run. This is due to the fact that your interest will be calculated for a longer period. What you should plan to do ahead of time is to reduce your repayment duration if your economic circumstances improve.
Requirements for Qualification for Refi of Small Loans
There are some requirements that every prospective borrower must meet before they qualify for refi loans. These requirements vary from one bank to another but the basics are as follows:-
Must be of Legal Age
Although the globally recognized legal age is 18, most banks in Norway require that an applicant be at least 23 years. Some banks however, go as high as 25 years for the minimum age of qualification. One major reason is that most people under 23 do not yet have stable incomes that can sustain monthly payments.
Verified Income
Lenders are not allowed by law to approve refi loan for anyone who doesn’t have a verifiable source of income. The income bracket that one must belong to varies from one bank to another based on the amount they want to borrow.
Another stipulation by law is that the borrower cannot be approved for a loan that’s more than 5 times their income for the year. So let’s say a borrower’s annual income is NOK 300,000; the person cannot be approved for a loan that’s higher than NOK1, 500,000.
Must Not Have a Payment Notice
Most banks will not approve a loan for anyone who already has a payment notice on their credit record. But there are some financial institutions that specialize in providing refinancing for consumers with payment notice. Note however, that these institutions do so under very stringent conditions.
That being said however, it is necessary that you look out for ways to pay off debts before it goes into debt collection and gets a payment notice. That’s actually the essence of refinancing; get your debts paid off before it goes into debt collection.
Proof of Citizenship 0r Residence
Banks in Norway often demand a proof of citizenship from Norwegian applicants and proof of residence from non- citizens. The proof of residence must show that the applicant has lived in the country for a minimum of 3 years. They must also show that they have paid tax in the country for that number of years.
Conclusion
Small loans are financial products that help people quickly sort out financial emergencies. However these credit facilities can quickly stack up into huge debts that become stressful for the borrower. But thankfully, there are ways to pay off these debts and we have discussed it in this article.
Refinancing, though a great way of getting out of debts, should not be ventured into lightly. You need to do your due diligence to know whether this is the right step to take or not. In this article, we have discussed requirements for getting this financing and reasons why you may need to consider it.
