Just like a mortgage loan, personal loans can also be refinanced. However, it is not common for banks to allow this so that consumers can enjoy a lower market interest rate. Restructuring of a personal loan only comes into play when there are problems with repayment, or if there is a risk that they will arise. The existing agreement is hereby broken open and replaced by a new personal loan with a lower monthly repayment amount. To reduce the repayment, the remaining term of the credit is usually extended.
Is there a need for refinancing of personal loans?
In the November report, the Central Individual Credit Register (CKP) reports that between October 2015 and October 2016, a total of 28,272 installment loans were added to the negative file (blacklist). This is an increase of 5.6% compared to the 2014 – 2015 registration. More Belgians have therefore run into problems paying off an installment loan in the past 12 months. It should be noted that if all types of loans are considered, there will be a slight decrease in the number of new problem loans in the current year.
Number of new contracts with a backlog (key figures CKP)
|Loan type||Oct. 2014 – Oct. 2015||Oct. 2015 – Oct. 2016|
|Installment loan *||26,777||28,272||+ 5.6%|
|Mortgage loan||10,048||10,358||+ 3.1%|
|Credit opening **||86,538||83,050||-4.0%|
* personal loan, car loan, renovation loan, green loan, etc.
** cash reserve, revolving credit, credit cards, etc.
Among the installment loans with payment arrears (three or more monthly installments missed), personal loans are the largest category. This simple formula is still too quickly approved by banks.
Rather than refinancing later
Problems with the repayment of a personal loan can arise in various ways. As a result of a structural or temporary decrease in income, or precisely because of a substantial increase in the fixed monthly charges. Most banks will remind their clients if more than one monthly payment is missed, or in the event of frequent repayments. As a borrower, you should not wait until it comes to that. As soon as you feel that the repayment of a personal loan puts a heavy burden on your budget, you can apply for refinancing. Banks will be inclined to look with you at the possibilities for this. Refinancing is often granted in the following cases:
- If a substantial part of the personal loan has already been repaid
- If documented, it can be demonstrated that the financial circumstances have changed compared to the time the loan was granted
Costs for refinancing a personal loan
A new credit agreement automatically generates new administration costs. Because the risk for the bank has increased (you had problems with repayments), a higher interest rate will be placed on the loan in most cases. Banks also attach costs to breaking open (early repayment) the original personal loan. It has been established by law that this may not exceed 1% of the outstanding balance. It is customary that all costs are included in the new loan, so that you do not have any direct expenses in the case of refinancing.