When a lender or borrower wishes to reallocate assets for a non-defaulted loan, both the lender and borrower have the option to initiate the refinancing process for the loan.
Unlike debt transfer, there are some differences in the refinancing process.
For refinancing, it can be initiated at any time as long as the loan is not in default. However, for debt transfer, the lender needs to initiate the debt transfer process for a loan in order to transfer the debt.
For refinancing, both loans with Fixed Loan Duration and Indefinite Loan Duration can be refinanced. However, for debt transfer, only Indefinite Loan Duration can initiate debt transfer.
For refinancing, the operator involved are the lender or the borrower. However, for debt transfer, the operator involved are the new lender or the other.
Refinance by lender
If the lender finds a suitable offer in terms of loan duration, they can directly transfer the loan to the new lender offering the favorable terms.
The new lender offering the refinancing option will take over the loan and assume the responsibility for repaying the original lender on behalf of the borrower. After the refinancing process is complete, the new lender becomes the new lender for the loan.
Refinance by borrower
Borrowers can initiate refinancing at any time when they find suitable offers in the market. There are several situations in which borrowers may consider refinancing:
Lower interest rates: If there are offers available with lower interest rates compared to their current loan, borrowers may refinance to reduce their borrowing costs.
Improved loan terms: Borrowers may refinance to obtain better loan terms, such as longer repayment periods, lower monthly payments, or more favorable conditions that suit their financial needs.
Access to additional funds: Refinancing can allow borrowers to access additional funds by leveraging the equity in their assets or properties.
Lower borrowing costs: Borrowers can use refinancing to reduce the amount of borrowed funds and lower borrowing costs.
Avoid being liquidated: In order to avoid being liquidated, borrowers can choose to refinance with a higher interest rate offer.