There are a number of different types of refinancing loans that may be used to consolidate multiple loans, or reduce the interest rate on existing loans. One of the most common types of refinancing is with a home loan or mortgage, in which borrowers will refinance the loan either for a lower interest rate, a shorter period of time, or both. Consolidation loans, in which student loans or even credit card debt are consolidated into a single loan with one monthly payment, are another of the most common types of refinancing loans.
People might choose to refinance a home mortgage for a number of reasons. In most cases, it is to lower an interest rate so the borrowers pay less over the term of the loan. In other cases, refinancing loans might be pursued in order to borrow more against the equity in the home. This might be a home equity loan or a second mortgage, or it might simply be a refinancing of the first mortgage in order to increase the amount. The latter practice is not often recommended, though some people find that it is the best way for them to get extra funds to make necessary improvements to their homes.
Consolidation is a means of refinancing loans that is pursued by many people because it can make a big difference in a monthly budget. People who are in school, for instance, will often have a number of smaller loans for each semester, and sometimes a mix of government and private loans with varying interest rates. This can lead to a number of different monthly payments per month. Consolidating those loans into one larger loan, with a fixed interest rate, can ensure that the monthly amount will not change, and that the interest rate will not increase over the years.
Personal loans and debt consolidation loans are also common ways of refinancing loans. Similarly to student loans, these services can allow people who are in credit card debt to take out one loan to pay off all the cards, and then just make one payment per month rather than multiple payments. Generally, this requires people to stop using their cards, but it can be worth it for people who are struggling to pay their credit card bills. Another type of refinancing loan is an auto loan refinance to get a lower interest rate or shorten the term, but this is relatively uncommon since most auto loans use simple interest and just paying the loan in advance can effectively reduce the amount of interest paid.