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Managing loans is a necessary skill to successfully administer your finances.

Whether it's your mortgage, student loans, or your car loan, the idea of refinancing might have crossed your mind.


In this article, we break down the pros and cons of loan refinancing to help you decide the best course of action to achieve your financial goals.


What is Refinancing?


Refinancing is the process of replacing an existing loan or financing with a new one that typically offers more favourable terms. 


The Pros of Refinancing:


Lower Interest Rates


Refinancing your loans can allow you to take advantage of lower interest rates. This immediately puts more money in your pocket each month and can lead to significant savings in the long run.


Debt Consolidation


You can use refinancing to combine multiple loans into one. This declutters your finances and allows you to enjoy a more streamlined repayment process.


Flexible Repayment Terms


You can choose to shorten your loan term for faster freedom from debt, or to extend it to lower your monthly payments. Refinancing can allow you to customise your finances to meet your needs.


Predictable Repayments


Switching from a variable to a fixed interest rate can make it easier to plan your budget. You won’t have to worry about yo-yoing interest rates anymore.


Access to Cash


Refinancing can be used to add cash to your finances. This could be used to pay for education or to fund some other goals and aspirations.


Improved Credit Score


Being able to make timely payments and lowering your credit utilisation can boost your credit score. Over time this will make you more appealing to future lenders.

The Cons of Refinancing:




Refinancing isn't free. You'll encounter application costs and there may be penalties for exiting your existing loan. These can reduce or even completely negate your savings. Always fully research the cost of refinancing before you apply to do so.


Extended Loan Term


Extending the term of your loan will reduce your monthly repayment but that might also mean that you'll pay more interest over time. Make sure you understand the balance between these two factors before refinancing your loan.


Credit Score Shake-Up


The process of refinancing your loans involves a thorough credit check and opening a new credit account. This can temporarily lower your credit score and may not be the right plan for your finances if you're planning a big purchase soon.


Variable Interest Rates


If you’re switching to a variable interest rate loan you must make sure you have the flexibility to manage interest rate fluctuations. No matter how fair the forecast may be, you must be prepared to weather any unexpected financial storms.


In the world of loan refinancing, there are many risks and rewards to consider. Loan refinancing can be a powerful tool when used wisely, but it's not a one-size-fits-all solution.


Before diving in, make sure you fully understand and weigh the pros and cons, and seek the advice of a financial advisor to make the best decision for your unique situation.


Learn about CIMB's Property Financing packages.



This article is for informational purposes only and CIMB does not make any representation and warranty as to the accuracy, completeness and fairness of any information contained in this article. As this article is general in nature, it is not intended to address the circumstances of any particular individual or entity. You are advised to consult a financial advisor or investment professional before making any decisions based on the information contained in this article. CIMB assumes no liability for any consequences arising from your reliance on the information presented here.