How to Refinance Long-Term Debt

Refinancing any debt will likely incur some fees and costs. Finance companies, banks, credit unions and loan brokers make their income through these fees as well as the interest charged on the loans. If you have a long-term debt (such as a mortgage, equity loan or lengthy car loan) that you need to refinance, you need to approach lenders with a certain amount of scrutiny. There are a number of factors to consider before you jump into the application process.

Instructions

1

Pull a copy of your credit report. You can access a free report at Annual Credit Report. You should also pay for your FICO score. This three-digit number between 300 and 850 represents your overall credit standing. Scores higher than 720 are very good; scores below 600 are poor.

2

Find the long-term debt on your credit report. Find out when the account was opened. Also, find out what the existing balance on the account is, and if the account has any delinquencies in the past.

3

Review the payment history on the account. If the account is currently well overdue (collections or charged-off), you have a couple options. First, review the statute of limitations laws for debt in your state. If you haven't paid on the debt in many years, you may be able to expunge the debt altogether. Review the laws for your state (see Resources).

4

Research lenders based on your credit score if you cannot remove the debt through the statute of limitations. If you have great credit, you will want to apply only at prime credit companies, such as local banks and credit unions. However, if you have less-than-perfect credit, you'll need to also research finance companies, too.

5

Apply at only three or four lenders. Too many applications may begin to drag down your credit rating. Provide all loan officers with copies of your income documents and your existing loan paperwork. This will help the underwriters reach a speedy pre-approval.

6

Review all loan offers against your existing loan. Make sure any new loan will meet your financial needs and goals, such as saving money, getting out of debt faster or moving from an adjustable rate to a fixed rate.

7

Choose a loan offer and proceed with the loan officer. Make sure to contact the other lenders and turn down the pending applications. Make sure to carefully follow the loan process to stay abreast of any changes regarding rate, payment and fees.